The global aspect of investing

Abstract

Research background: Investing in the capital market is one of the ways for an investor to increase his income. Investing in the capital market is described as very risky, but it provides us with an opportunity to achieve high returns. There is an infinite number of assets on the market that an investor can include in his portfolio, and which assets he chooses to invest in will ultimately affect the return and risk of the created portfolio. Therefore, the investor should think rationally and should try to reduce the risk of his investment. Purpose of the article: This article aims to point out the effect of diversification through the creation of a portfolio of financial assets. Methods: This paper uses modern portfolio theory and focuses on the use of the Markowitz model. The optimal weights of individual assets in the compiled portfolio are calculated using the Lagrange function. We use data on weekly closing prices of individual stocks, commodity and mutual fund. Findings & Value added: The main finding was that the risk associated with the created portfolio is lower than the risk associated with investing in individual assets.

Keywords

• diversification;
• asset investment;
• modern portfolio theory;
• return;
• risk