Optimum portfolio selection using the cutoff rate
Abstract
The research aims to determine the appropriate model that guides the investor in
determining its optimal portfolio, which achieves the highest return for any level of risk
or the lowest risk for any level of return, as it achieves the best trade-off between return
and risk. The simple arrangement or cut-rate model was chosen, which is adopted as a
basis for either adding or excluding any security to the optimal portfolio. The research
relied on the cut-rate technique. The optimal portfolio can be determined by selecting a
limited number of available stocks. To achieve a goal, it relied on the returns of the
monthly assets of a group of companies (Dow Jones 30), an industrial index for the thirty
largest industrial companies on the New York Stock Exchange for the period (12/31/2016
- 1/1/2016). And it turned out that the additional return and the systemic risk play an
important role in adding or excluding any security to the optimal portfolio
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