Portfolio Optimization in Practice: A Comparative Analysis of the Markowitz and Index Models

DOI

10.2991/978-94-6463-748-9_40How to use a DOI?

Keywords

portfolio optimization; Markowitz model; Index model; financial strategy

Abstract

Portfolio optimization is the foundation of modern investing theory, enabling investors to balance risk and return in the dynamic stock market environment. This paper examines two seminal models of portfolio optimization—the Markowitz model and the Index model—exploring their theoretical foundations, methodologies, and practical applications. The Markowitz model, with its rigorous mean-variance optimization framework, emphasizes diversification by accounting for asset correlations, offering unmatched precision in portfolio construction. Conversely, the Index model simplifies optimization by linking asset returns to a single market index, reducing computational demands and focusing on systematic risks. Using Goldman Sachs’ $621 billion stock portfolio as a case study, the paper evaluates the applicability and performance of these models in managing large-scale, diversified investments. Findings highlight the Index model’s practicality and alignment with Goldman Sachs’ strategic focus on market indices and technology sector investments, underscoring its suitability for large institutional portfolios. This comparative analysis illuminates how theoretical frameworks can be effectively integrated into real-world financial strategies to optimize performance and manage risk in a complex, ever-changing market landscape.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Fukuei Nahari
PY  - 2025
DA  - 2025/07/03
TI  - Portfolio Optimization in Practice: A Comparative Analysis of the Markowitz and Index Models
BT  - Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025)
PB  - Atlantis Press
SP  - 360
EP  - 367
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-748-9_40
DO  - 10.2991/978-94-6463-748-9_40
ID  - Nahari2025
ER  -