Risk-Return Analysis on Optimum Portfolio Selection of Islamic Stocks

Abstract

This study aims to determine the optimum portfolio category and analyze the risk-return on a formed portfolio. Data was taken from eighteen listed companies indexed by Jakarta Islamic Index during 2015-2018. Stock returns are calculated based on the closing price at the end of each month in the period. Sharia Certificate of Bank Indonesia is a proxy of risk-free return, while the market return is measured by the value of the Jakarta Islamic Index. Stocks are sorted by the value of excess return to beta (ERB) from highest to lowest, and to obtain optimal stock portfolio candidates, and the ERB value must be compared with the cut-off rate value. Seven issuers qualify for forming the optimum portfolio of shares. The results show that the optimum portfolio return is greater than the expected return and the expected risk-free return. When compared between individual stock returns and portfolio stock returns, some individual stocks provide higher returns than portfolio returns. However, the risk of individual shares was also higher than the risk of the portfolio. This finding proves that risk can be reduced optimally in Islamic stocks selection by forming an optimum portfolio.

Keywords

• risk
• return
• optimum portfolio
• portfolio selection