APPLICATION OF SHARPE’S SINGLE INDEX MODEL FOR OPTIMAL PORTFOLIO CONSTRUCTION IN THE CONTEXT OF THE STOCK EXCHANGE OF THAILAND

Abstract

This study examines the application of Sharpe’s Single Index Model (SIM) to select optimal securities for a portfolio and analyze its returns and risks, using SET50 stocks as the sample. Secondary data were collected from publicly available stock price sources between July 1 and December 31, 2024. The analysis includes returns, risks, beta, excess return to beta ratio, cut-off rate, investment allocation, expected return, and portfolio risk. Statistical measures such as mean, variance, covariance, and standard deviation were computed using Excel functions and SPSS. The findings indicate that the optimal portfolio consists of ADVANC, CBG, and IVL, with investment weights of 88%, 11%, and 1%, respectively. The portfolio’s expected return is 1.45%, exceeding the market return of 0.07%, but it carries higher risk, with a standard deviation of 1.44% compared to the market’s 0.78%. Due to the small number of securities in the portfolio, the risk is less diversified. However, when estimating using the rolling method (T=3) within the 95 percent confidence range, the portfolio return was between -1.13% and 1.13%, and the Sharpe Ratio ranged from -0.92 to 1.37. Sharpe’s Single Index Model provides a systematic and empirical approach for investors to select securities using quantitative data and effectively diversify their investments.