International Journal of Accounting, Finance and Risk Management

2017; 2(1): 21-30

http://www.sciencepublishinggroup.com/j/ijafrm
doi: 10.11648/j.ijafrm.20170201.14

Portfolio Optimization Using Matrix Approach: A Case of

Some Stocks on the Ghana Stock Exchange
Abonongo John1, Anuwoje Ida Logubayom2, *, Ackora-Prah J.1
1
College of Science, Department of Mathematics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana
2
Faculty of Mathematical Sciences, Department of Statistics, University for Development Studies, Navrongo, Ghana

Email address:
idalogubayom@yahoo.com (A. I. Logubayom)
*
Corresponding author

To cite this article:

Abonongo John, Anuwoje Ida Logubayom, Ackora-Prah J. Portfolio Optimization Using Matrix Approach: A Case of Some Stocks on the
Ghana Stock Exchange. International Journal of Accounting, Finance and Risk Management. Vol. 2, No. 1, 2017, pp. 21-30.
doi: 10.11648/j.ijafrm.20170201.14

Received: September 11, 2016; Accepted: November 25, 2016; Published: February 13, 2017

Abstract: Analyzing risk has been a principal concern of actuarial and insurance professionals which plays a fundamental
role in the theory of portfolio selection where the prime objective is to find a portfolio that maximizes expected return while
reducing risk. Portfolio optimization has been applied to asset management and in building strategic asset allocation. The
purpose of this paper is to construct optimal and efficient portfolios using the matrix approach. This paper used secondary data
on 13 stocks (ETI, GCB, GOIL, TOTAL, FML, GGBL, CLYD, EGL, PZC, UNIL, TLW, AGA and BOPP) from the Ghana
Stock Exchange (GSE) database comprising the monthly closing prices from the period 02/01/2004 to 16/01/2015. The results
revealed that, all the portfolios were optimal and that portfolios 1, 2, 4, 5, 6, 9, 10, 11 and 12 with expected return 2.523, 2.593,
2.827, 3.642, 2.405, 2.812, 5.229, 3.559 and 5.928 respectively were efficient portfolios whereas portfolios 3, 7 and 8 with
expected return 0.377, 0.699 and 0.152 respectively were inefficient portfolios with reference to the expected return of the
global minimum variance portfolio (2.360). GGBL was seen as the stock with the highest allocation of wealth in most of the
portfolios. Six out of the 12 portfolios had CLYD exhibiting the least asset allocation.
Keywords: Portfolio Optimization, Efficient Frontier, Mean-Variance, Matrix Approach

which have max expected return for a given risk level can be
1. Introduction estimated.
After Markowitz ground-breaking work in portfolio In portfolio analysis, variance measures the volatility (risk)
selection Markowitz [10] portfolio optimization has been of an asset or group of assets, hence larger variance indicates
receiving greater attention from asset and liability managers, greater risk and vice versa. When many assets are held
academics and risk managers. Most of the studies explain a together in a portfolio, assets decreasing in value are usually
portfolio optimization criterion such as mean-variance, offset by portfolios asset increasing in value, hence
conditional value-at-risk, value-at-risk, mean absolute minimizing risk. Also, the total variance of a portfolio is
deviation, stochastic dominance of first and second order usually lower than a simple weighted average of the
among others. individual asset variances [5]. The return of any financial
The mean-variance is the traditional optimization approach asset is described by a random variable, whose expected
introduced by Markowitz. But before Markowitz presented mean and variance are assumed to be reliably estimated from
his approach, portfolio theory was a relevant area of research. historical data. The expected mean and variance are
However, the main focus of Bachelier and his successor was interpreted as the compensation and the risk respectively. The
to improve performance. Markowitz focused on risk. He portfolio optimization problem can be formulated as follows:
established volatility as a major risk measure in portfolio given a set of assets, characterized by their returns and
theory and showed how the risk can be reduced by covariance, find the optimal weight of the asset such that the
diversification. He demonstrated how financial portfolios overall portfolio provides the lowest risk for a given overall
22 Abonongo John et al.: Portfolio Optimization Using Matrix Approach: A Case of Some
Stocks on the Ghana Stock Exchange

return. This problem reduces to find the efficient frontier, the same expected return, but with different risk levels. Also,
which is the set of all achievable (attainable) portfolios that a risk-averse investor will choose the portfolio with the
offers a higher return for a given risk level. When the number highest return, when they have to choose from a set of
of assets in a portfolio becomes large, the total variance is portfolios with the same risk, but different expected returns.
actually derived from the covariance than from the variances This indicates that efficient portfolios are located in the
of the assets [15]. efficient frontier (minimum-variance frontier). An optimal
The theory of portfolio optimization is generally portfolio is one that has the minimum risk for a given level of
associated with the classical mean-variance optimization return and an efficient portfolio is one that has the maximum
framework of Markowitz [10]. The drawback of the mean- expected rerun for a given level of risk. Thus, all portfolios
variance analysis is mainly related to its sensitivity to the on the minimum-variance frontier are optimal, but only those
estimation error of the means and covariance matrix in the upper portion-at above the global minimum-variance
estimation of the returns of the asset. Also, it is argued that portfolio are efficient.
estimates of the covariance matrix are more accurate than The purpose of this paper is to construct optimal and
those of the expected returns ([12], [8]). Several studies efficient portfolios using matrix approach. This will give
concentrates on improving the performance of the global investors an insight in diversification, asset management and
minimum-variance portfolio (GMVP), which provides the risk management. It will also aid investors and academics on
least possible portfolio risk and involves only the covariance how to construct optimal and efficient portfolios using matrix
matrix estimates. approach.
The classical mean-variance framework depends on the
perfect knowledge of the expected returns of the assets and 2. Materials and Methods
their variance-covariance matrix. However, these returns are
unobservable and unknown. The impossibility to obtain a 2.1. Source of Data
sufficient number of data samples, instability of data,
differing personal views of decision makers on the future This paper used secondary data of 13 stocks (ETI, GCB,
returns [13] affect their estimation and has led to what [1] GOIL, TOTAL, FML, GGBL, CLYD, EGL, PZC, UNIL,
call estimation risk in portfolio selection. This estimation risk TLW, AGA and BOPP) from the Ghana Stock Exchange
has shown to be the source of very erroneous decisions, for, (GSE) database comprising the daily closing prices from the
as pointed in ([2], [6]), the composition of the optimal period 02/01/2004 to 16/01/2015.
portfolio is very sensitive to the mean and the covariance 2.2. Methods of Data Analysis
matrix of the asset returns and agitation in the moments of
the random returns can result in the difficulties in The daily index series were converted into compound
constructing different optimization. returns given by;

= log
[9], examined portfolio optimization with correlation
matrix. The results showed how to perform portfolio (1)
optimizations using mean-correlation instead of mean-
variance analysis and that the two alternatives set-up where is the continuous compound returns at time , is
produced equivalent optimization weights if correlation- the current closing stock price index at time and is the
based number transformed back to mean-variance ones. Also, previous closing stock price index. These returns were
the analysis, presented strengthens the role of regression converted into monthly returns by assuming 365 days a year
methods in portfolio analysis. [14], presented a simplified and averaging to get 30 days a month. This was then
perspective of Markowitz contributions to Modern Portfolio multiplied by the daily returns to obtain the monthly returns.
Theory (MPT), foregoing in-depth presentation of the The same method was employed in obtaining the monthly
complex mathematical/statistical models typically associated standard deviations by multiplying the square root of 30 by
the daily standard deviations.
with discussions of this theory and suggested efficient
1,2, … , . Let = ( = 1,2, … , ) denote the return on asset
For an -asset portfolio problem with assets given by
computer-based ‘short cuts’.
Also, ([3], [16], [7]) have studied the mean variance
with a constant expected return model given by

~ ( , )
framework in a robust context, assuming that the expected
return is stochastic. They characterize the parameters (2)

!"# , $% =
involved in the mean and the variance-covariance matrix
with specific types of uncertainty, and built semi-definite or $ (3)
second-order cone programs.
Assuming that all wealth in the -asset is given by
& + & + ⋯ + &) = 1
On efficient and optimal portfolios, [4] stated that
portfolios are efficient when they provide the maximum (4)
possible expected return for a certain risk level. When
building efficient portfolio one need to assume that investors Then, the portfolio return, ,+ is given by

=& +& + ⋯ + &)

are risk-averse, meaning that they will choose the portfolio
with the least risk. When faced with several portfolios with ,+ ) (5)
 International Journal of Accounting, Finance and Risk Management 2017; 2(1): 21-30 23

where & , & , … , &) are the weights of the portfolio and F = (F , F , … , F) )@
, , … , ) are the returns of the individual stocks.
(14)
where F , F , … , F) are the global minimum-variance
portfolio weights for asset1, 2, … , .
From Equation 5, the expected return on the portfolio is
For an − asset case, the constrained minimization
given by

,+ = ,- ,+ . =& +& + ⋯ + &) ) (6) problem is given by

minK ,KL ,…,KM ,K =F +F + ⋯ + F) ) +

2F F + 2F F) ) + ⋯ + 2F) F) )() ) (15)
and the variance of the portfolio return given by

,+ = "/0# ,+ % (7)
Thus,
F +F + ⋯ + F) = 1
2.3. Portfolio Characteristics Using Matrix Approach
(16)

× 1 column vector;
The asset returns and portfolio weights are given by an
Also, the first order linear equation is given by
2 2 … 2 ) 1 F 0
P 2 2 … 2 )1 T F P 0T
= 2 4
⋮ O2 2 )… 2 ) 1 S 2 ⋮
F)
4 = O⋮S
0
(8)
)
⋮ ⋮ ⋮ ⋮
(17)

U
)

& N 1 1 1 0 R NU R
&
5 = 2 ⋮ 4 ; ∑)8 & = 1 Therefore,
&) 2Σ 1 F 0
(9)

=
1@ 0 U 1
(18)

the elements of . In the constant expected model, all returns

The probability distribution of is the joint distribution of
Equation (18) is of the form
are jointly normally distributed and is characterized by the VK WK = X
F
(19)
matrix notation, the × 1 vector of portfolio expected return 2Σ 1 0
where VK = ,W = and X =
mean, variance and covariance of the returns. Applying

1@ 0 K U 1
Thus, solving for YK from Equation (19), we get
is given by
,9 :
,9 : WK = VK X
,9 : = , ;2 4< = 2 4=2 ⋮ 4=
⋮ ⋮
(20)
where the elements of WK are the portfolio weights F =
,9 ) :
(10)

(F , F , … , F) )@ for the global minimum variance portfolio

) )

× $ = return, ,K = F@ and variance, ,K = F@ Σm.

!"# , $ % is given by
and the covariance matrix of returns;

= = … =
2.5. Determining the Efficient Portfolios
)
= = … =
= 2 ⋮ ⋮ 4=Σ # , %-space is explained by set of values whose shape
)
⋮
For an n-asset case, the investment opportunity set in

=) =) =))
(11)
depends on the covariance terms. Assuming that investors

?/0( ) = ?/0(∑)8 & ) =

select portfolios that maximizes expected return subject to a

!"#∑)8 & , ∑)8 &$ $ % = ∑)8$8 & &$ = $ = & & @ (12)
target level of risk or minimize risk subject to a target
expected return, the asset allocation problem can be
streamlined by only concentrating on the set of efficient
Also, the condition that the portfolio weights sum to one portfolios. These portfolios lie on the boundary of the
(1) is given by investment opportunity set above the global minimum
1
variance portfolio.

& ε = (& , & , … , &) ). C1D = & , & , … , &) = 1

@
⋮
Following Markowitz [11], we assume that investors wish

1
(13) to find portfolios that have the best expected return-risk trade
off. Firstly, investors wish to find portfolios that maximizes

where E is an × 1 vector with entries equal 1.

portfolio expected return for a given risk level as measured
by portfolio variance or standard deviation. This constrained
maximization problem to find an efficient portfolio is given
2.4. Estimating the Global Minimum Variance Portfolio
by
max+ = &@
The global minimum-variance portfolio is simply the
(21)
portfolio on the efficient frontier that has the least risk. It is
given by
24 Abonongo John et al.: Portfolio Optimization Using Matrix Approach: A Case of Some
Stocks on the Ghana Stock Exchange

= & @ Σw = ,] ; &
@
1=1 2Σ 1 & 0
b @
0 0c bU c = b ,] c
(22)

1@ 0 0 U 1
(29)
Markowitz also showed that the investor’s problem of
maximizing portfolio expected return subject to a target risk
Equation (29) is of the form
VW+ = X]
level has a correspondent dual representation in which the
investor minimizes the risk of the portfolio subject to a given

&
(30)
2Σ
1 0
expected return. This dual problem is the constrained

where V = b U
0 0c, W+ = b c and X] = b ,] c
@
minimization problem which is given by
min+ ,+ = & @ Σw 1@ 0 0 U 1
Solving for W+ , we get
(23)

= &@ = ,] ; &
@
1=1
W+ = V X]
(24)
(31)
If ,] ≥ ,K then portfolio, & = (& , & , … , &) )@ is an
In this paper, the dual problem is considered due to

efficient portfolio otherwise & is an inefficient portfolio.

computational convenience and that investors being more
willing to specify target expected returns rather than risk.
In solving the constrained minimization problem in Also, all portfolios on the minimum variance frontier are
Equations (23 and 24), the Lagrangian function is employed optimal, but only those in the upper portion (at or above) the
and is given by global minimum-variance portfolio are efficient.

^(&, U , U ) = & @ Σw + U #& @ − ,] % + U (& @ 1 − 1) (25)

3. Results and Discussion
where & = ,] and & 1 = 1 are the two constraints and
@ @

U and U are the two Lagrangian multipliers.

Table 1 shows the descriptive statistics of the stocks. With
much emphasis on the monthly returns and standard
The first order conditions for a minimum are given by the deviations, the results show that, the monthly expected return
following linear equations ranges from -0.547 to 5.928 with the highest return found in
= 2Σw + U +U 1=0
_`(+,a ,aL ) BOPP and the least return found in CLYD. All the stocks
_+
(26) made gains (positive expected return) with the exception of

= &@ − =0
_`(+,a ,aL ) CLYD which made a loss (negative expected return). The
_a ,] (27) monthly standard deviation (risk) ranged from 8.498 to

= &@1 − 1 = 0
_`(+,a ,aL )
35.547 with ETI (35.547) been the stock with the highest risk
_aL
(28) level compared with GGBL (8.498) which had the least risk
level. Even though, the highest mean return was found in
Also, representing the system of linear equations in matrix BOPP, its risk level was less than that of ETI. This implies
form, we get that, ETI is much riskier than the rest of the stocks and that
an investors need to reduce this risk by diversifying. For risk
averse investors, it will be prudent to go in for GGBL since it
had the least risk level compared to the rest of the stocks.
Table 1. Descriptive Statistics.

Stock Daily Expected Return Monthly Expected return Daily Std. Dev Monthly Std. Dev
ETI 0.083 2.523 6.463 35.547
GCB 0.085 2.593 1.926 10.594
GOIL 0.012 0.377 2.097 11.536
TOTAL 0.093 2.827 4.328 23.804
FML 0.120 3.642 2.157 11.864
GGBL 0.079 2.405 1.545 8.498
CLYD -0.018 -0.547 4.598 25.289
EGL 0.023 0.699 3.798 20.889
PZC 0.005 0.152 3.165 17.408
UNIL 0.093 2.812 1.882 10.352
TLW 0.172 5.229 5.270 28.985
AGA 0.117 3.557 3.346 18.403
BOPP 0.195 5.928 4.196 23.078

Table 2 shows the covariance matrix of the stocks. This provides a first-hand information on how the returns move together
in a whole.
 International Journal of Accounting, Finance and Risk Management 2017; 2(1): 21-30 25

Table 2. Covariance Matrix of the Stocks.

Stock ETI GCB GOIL TOTAL FML GGBL CLYD EGL PZC UNIL TLW AGA BOPP
ETI 41.770 -2.013 -1.231 -2.284 1.047 0.207 0.362 4.116 -0.910 -1.550 0.355 -0.284 1.350
GCB -2.013 3.710 -0.047 1.615 -0.479 -0.188 0.027 -2.964 0.426 1.147 -0.095 0.852 -1.269
GOIL -1.231 -0.047 4.399 -0.166 -0.229 0.412 0.025 0.749 -0.042 -0.015 0.144 -0.015 0.111
TOTAL -2.284 1.615 -0.166 18.734 -0.646 -0.458 -1.379 -3.483 0.408 1.308 0.020 0.127 -0.174
FML 1.047 -0.479 -0.229 -0.646 4.653 0.799 1.455 1.732 -0.572 -0.545 -0.179 0.757 1.650
GGBL 0.207 -0.188 0.412 -0.458 0.799 2.387 0.446 2.006 0.128 -0.618 0.053 0.642 1.221
CLYD 0.362 0.027 0.025 -1.379 1.455 0.446 21.138 -0.144 0.394 -0.016 -0.425 -0.243 1.232
EGL 4.116 -2.964 0.749 -3.483 1.732 2.006 -0.144 14.427 -1.230 -2.382 0.174 -0.217 3.298
PZC -0.910 0.426 -0.042 0.408 -0.572 0.128 0.394 -1.230 10.017 1.229 -0.042 0.205 0.168
UNIL -1.550 1.147 -0.015 1.308 -0.545 -0.618 -0.016 -2.382 1.229 3.542 0.188 0.347 -1.635
TLW 0.355 -0.095 0.144 0.020 -0.179 0.053 -0.425 0.174 -0.042 0.188 27.777 -0.005 -0.504
AGA -0.284 0.852 -0.015 0.127 0.757 0.642 -0.243 -0.217 0.205 0.347 -0.005 11.199 -0.328
BOPP 1.350 -1.269 0.111 -0.174 1.650 1.221 1.232 3.298 0.168 -1.635 -0.504 -0.328 17.603

Figure 1 shows the monthly plot of risk-return of the stocks. The plot shows that, GOIL, PZC and EGL recorded low returns
with higher risk levels compared with FML, AGA, BOPP and TLW which recorded higher returns with somewhat lower risk
levels. ETI recorded the highest risk level of 35.547 with an expected return of 2.523. GGBL recorded the least risk with an
expected return of 8.498. Since investors are only interested in forming optimal and efficient portfolios, CLYD was not
considered since it made a loss. Also, the risk-return plot indicates that, equally weighted portfolio has higher expected return
per the level of risk.

Figure 1. Monthly plot of the risk and return of the stocks.

Table 3, shows the estimates of the global minimum-variance portfolio. The results reveals that, the expected return on the
portfolio called global minimum-variance is 2.360 and a risk level of 0.766. This means that, there is a 0.766 risk in investing
in the minimum-variance portfolio that rewards 2.360. The global minimum-variance portfolio has portfolio weights (asset
allocation) as follows;
Fe = 0.014, Fghi = 0.166, Fg] k = 0.139, F ] nk = 0.020, FoKk = 0.150,

Fggik = 0.188, Fhkrs = 0.014, Fegk = 0.024, F th = 0.061, Fu) k = 0.163,

F k+ = 0.020, Fngn = 0.014 / Fi] = 0.026.

In a vector form, the allocation of assets for the global minimum-variance portfolio is given by;
F = (0.014,0.166,0.139,0.020 0.150,0.188,0.014,0.024,0.061,0.163,0.020,0.014,0.026)@ (32)
26 Abonongo John et al.: Portfolio Optimization Using Matrix Approach: A Case of Some
Stocks on the Ghana Stock Exchange

In other to achieve this return, an investor needs to allocate assets given Equation 32 for investing in the portfolio with the
least risk.

Table 3. Global Minimum Variance Portfolio.

Stock Global Minimum Variance portfolio Weight Expected Return (vw,x ) Portfolio Std. dev (yw,x )
ETI 0.014 2.360 0.766
GCB 0.166
GOIL 0.139
TOTAL 0.020
FML 0.150
GGBL 0.188
CLYD 0.014
EGL 0.024
PZC 0.061
UNIL 0.163
TLW 0.020
AGA 0.014
BOPP 0.026

Table 4, shows the efficient portfolio with the same allocation of wealth in most of the portfolios. This is so
expected return as a given stock. The results indicate that, because from Table 1, GGBL exhibited the least standard
when ETI, GCB, GOIL, TOTAL, FML, GGBL, EGL, PZC, deviation (risk) and since investors are interested in
UNIL, TLW, AGA and BOPP with expected returns 2.523, minimizing risk given a target expected return, hence much
2.593, 0.377, 2.827, 3.642, 2.405, 0.699, 0.152, 2.812, 5.229, wealth allocation in GGBL. The least allocation of wealth in
3.559 and 5.928 respectively, then in other to have a portfolio portfolio 1, 2, …, 12 was CLYD (0.007), CLYD (0.004),
whose expected return will be the same as that of as any of BOPP (-0.102), CLYD (-0.005), CLYD (-0.040), CLYD
the above assets, an investor need to bear a risk 0.771, 0.776, (0.012), BOPP (-0.081), BOPP (-0.116), CLYD (-0.005),
1.288, 0.805, 1.019, 0.067, 1.157, 1.384, 0.802, 1.685, 0.990 GOIL (-0.212), EGL (-0.177) and GOIL (-0.297)
and 2.017 for holding portfolio 1, 2,…,12 respectively which respectively. Six out of the 12 portfolios had CLYD
are all lesser than the individual risk associated with the exhibiting the least asset allocation. This is because even
assets. This indicates that, one reduces risk by diversifying in though from Table 1, CLYD had a higher risk level but no
several assets that are uncorrelated. In portfolio 1, 2, …, 12, compensation for holding it since it made a loss. For an
the highest proportion of asset allocation is found in GGBL investor to adequately minimize risk in other to achieve the
(0.188), GGBL (0.189), GGBL (0.188), GOIL (0.382), expected return in each portfolio, the proportion of wealth to
GGBL (0.190), GGBL (0.194), GGBL(0.179), PZC (0.192), be allocated to each asset in each portfolio is given by the
GGBL(0.190), FML (0.356), FML (0.236) and FML (0.406) following vectors;
respectively. GGBL is seen as the stock with the highest
& ]z o]k ] = (0.014,0.169,0.119,0.021,0.162,0.188,0.007,0.020,0.052,0.169,0.025,0.017,0.037)@ (33)

& ]z o]k ] = (0.014,0.0.170,0.111,0.021,0.167,0.189,0.004,0.017,0.047,0.172,0.027,0.019,0.041)@ (34)

& ]z o]k ] | = (0.119,0.130,0.382,0.011,0.008,0.178,0.098,0.084,0.179,0.084, −0.036, −0.028, −0.102)@ (35)

& ]z o]k ] } = (0.146,0.174,0.082,0.022,0.183,0.190, −0.005,0.010,0.033,0.181,0.034,0.024,0.056)@ (36)

& ]z o]k ] ~ = (0.155,0.189, −0.017,0.026,0.242,0.194, −0.040, −0.014, −0.015,0.213,0.057,0.041,0.109)@ (37)

& ]z o]k ] • = (0.014,0.167,0.134,0.020,0.153,0.189,0.012,0.023,0.059,0.164,0.022,0.015,0.029)@ (38)

& ]z o]k ] € = (0.012,0.136,0.342,0.013,0.031,0.179,0.084,0.075,0.160,0.097, −0.027, −0.021, −0.081)@ (39)

& ]z o]k ] • = (0.012,0.126,0.409,0.010, −0.008,0.177,0.107,0.091,0.192,0.075, −0.043, −0.032, −0.116)@ (40)

& ]z o]k ] ‚ = (0.015,0.172,0.084,0.022,0.182,0.190, −0.005,0.011,0.034,0.180,0.033,0.023,0.055)@ (41)

& ]z o]k ] ƒ = (0.017,0.218, −0.212,0.033,0.356,0.202, −0.107, −0.062, −0.109,0.276,0.102,0.074,0.211)@ (42)

& ]z o]k ] = (0.015,0.188, −0.007,0.025,0.236,0.194, −0.036, −0.117, −0.010,0.210,0.055,0.039,0.103)@ (43)

& ]z o]k ] = (0.018,0.231, −0.297,0.036,0.406,0.205, −0.136, −0.083, −0.151,0.304,0.122,0.089,0.256)@ (44)

 International Journal of Accounting, Finance and Risk Management 2017; 2(1): 21-30 27

The efficient portfolios were selected by taking into considered efficient portfolios since their expected return
consideration the expected return of each portfolio. That is, each is greater than the expected return of the global
any portfolio with expected return greater or equal the minimum variance portfolio. This indicates that, these
expected return of the global minimum-variance portfolio is portfolios have maximum expected for the level risk
considered efficient portfolio otherwise the portfolio is an estimated. Portfolios 3, 7 and 8 with expected return 0.377,
inefficient one. From the results, portfolios 1, 2, 4, 5, 6, 9, 10, 0.699 and 0.152 respectively are considered inefficient
11 and 12 with expected return 2.523, 2.593, 2.827, 3.642, portfolios since their expected each is less than the expected
2.405, 2.812, 5.229, 3.559 and 5.928 respectively are return of the global minimum-variance portfolio.
Table 4. Efficient Portfolio with the same expected return as a given stock.

Portfolio No. Stock Stock Expected Return Weight Portfolio Expected Return (vw,„ ) Portfolio Std. dev (yw,„ )
1 ETI* 2.523 0.014 2.523 0.771
GCB 0.169
GOIL 0.119
TOTAL 0.021
FML 0.162
GGBL 0.188
CLYD 0.007
EGL 0.020
PZC 0.052
UNIL 0.169
TLW 0.025
AGA 0.017
BOPP 0.037
ETI 0.014
2 GCB* 2.593 0.170 2.593 0.776
GOIL 0.111
TOTAL 0.021
FML 0.167
GGBL 0.189
CLYD 0.004
EGL 0.017
PZC 0.047
UNIL 0.172
TLW 0.027
AGA 0.019
BOPP 0.041
ETI 0.119
GCB 0.130
3 GOIL* 0.377 0.382 0.377 1.288
TOTAL 0.011
FML 0.008
GGBL 0.178
CLYD 0.098
EGL 0.084
PZC 0.179
UNIL 0.084
TLW -0.036
AGA -0.028
BOPP -0.102
ETI 0.146
GCB 0.174
GOIL 0.082
4 TOTAL* 2.827 0.022 2.827 0.805
FML 0.183
GGBL 0.190
CLYD -0.005
EGL 0.010
PZC 0.033
UNIL 0.181
TLW 0.034
AGA 0.024
BOPP 0.056
ETI 0.155
GCB 0.189
GOIL -0.017
TOTAL 0.026
5 FML* 3.642 0.242 3.642 1.019
GGBL 0.194
CLYD -0.040
28 Abonongo John et al.: Portfolio Optimization Using Matrix Approach: A Case of Some
Stocks on the Ghana Stock Exchange

Portfolio No. Stock Stock Expected Return Weight Portfolio Expected Return (vw,„ ) Portfolio Std. dev (yw,„ )
EGL -0.014
PZC -0.015
UNIL 0.213
TLW 0.057
AGA 0.041
BOPP 0.109
ETI 0.014
GCB 0.167
GOIL 0.134
TOTAL 0.020
FML 0.153
6 GGBL* 2.405 0.189 2.405 0.767
CLYD 0.012
EGL 0.023
PZC 0.059
UNIL 0.164
TLW 0.022
AGA 0.015
BOPP 0.029
ETI 0.012
GCB 0.136
GOIL 0.342
TOTAL 0.013
FML 0.031
GGBL 0.179
CLYD 0.084
7 EGL* 0.699 0.075 0.699 1.157
PZC 0.160
UNIL 0.097
TLW -0.027
AGA -0.021
BOPP -0.081
ETI 0.012
GCB 0.126
GOIL 0.409
TOTAL 0.010
FML -0.008
GGBL 0.177
CLYD 0.107
EGL 0.091
8 PZC* 0.152 0.192 0.152 1.384
UNIL 0.075
TLW -0.043
AGA -0.032
BOPP -0.116
ETI 0.015
GCB 0.174
GOIL 0.084
TOTAL 0.022
FML 0.182
GGBL 0.190
CLYD -0.005
EGL 0.011
PZC 0.034
9 UNIL* 2.812 0.180 2.812 0.802
TLW 0.033
AGA 0.023
BOPP 0.055
ETI 0.017
GCB 0.218
GOIL -0.212
TOTAL 0.033
FML 0.356
GGBL 0.202
CLYD -0.107
EGL -0.062
PZC -0.109
UNIL 0.276
10 TLW* 5.229 0.102 5.229 1.685
AGA 0.074
BOPP 0.211
ETI 0.015
GCB 0.188
 International Journal of Accounting, Finance and Risk Management 2017; 2(1): 21-30 29

Portfolio No. Stock Stock Expected Return Weight Portfolio Expected Return (vw,„ ) Portfolio Std. dev (yw,„ )
GOIL -0.007
TOTAL 0.025
FML 0.236
GGBL 0.194
CLYD -0.036
EGL -0.117
PZC -0.010
UNIL 0.210
TLW 0.055
11 AGA* 3.559 0.039 3.559 0.990
BOPP 0.103
ETI 0.018
GCB 0.231
GOIL -0.297
TOTAL 0.036
FML 0.406
GGBL 0.205
CLYD -0.136
EGL -0.083
PZC -0.151
UNIL 0.304
TLW 0.122
AGA 0.089
12 BOPP* 5.928 0.256 5.928 2.017

* Given stock

Figure 2, shows the efficient frontier of the portfolios under consideration. It can be seen that, all the portfolios are optimal
since they are all on the minimum-variance frontier. Also, the efficient portfolios (ETI, GCB, TOTAL, FML, GGBL, CLYD,
UNIL, TLW, AGA and BOPP) are located in the upper portion-at or above the global minimum-variance portfolio (Global
minimum) whereas the inefficient portfolios (GOIL, PZC and EGL) are found beneath the Global minimum.

Figure 2. Efficient Frontier.

4. Conclusion (2.360). GGBL is seen as the stock with the highest

allocation of wealth in most of the portfolios. Six out of
The purpose of this paper is to construct optimal the 12 portfolios had CLYD exhibiting the least asset
portfolio using matrix approach. The results indicate that, allocation. It is therefore advisable for investors to
all the portfolios are optimal and that portfolios 1, 2, 4, 5, consider investing in the efficient portfolios by taking into
6, 9, 10, 11 and 12 with expected return 2.523, 2.593, consideration the weight of each portfolio so as to
2.827, 3.642, 2.405, 2.812, 5.229, 3.559 and 5.928 minimize risk in other to get the desired return. Also, it is
respectively are efficient portfolios whereas portfolios 3, 7 seen that investing in only one asset bares a higher risk
and 8 with expected return 0.377, 0.699 and 0.152 than investing in several assets hence the need for
respectively are inefficient portfolios with reference to the investors to diversify their portfolios.
expected return of the global minimum variance portfolio
30 Abonongo John et al.: Portfolio Optimization Using Matrix Approach: A Case of Some
Stocks on the Ghana Stock Exchange

[9] Manuel Tarrazo (2013). Portfolio Optimization with

Correlation Matrix: How, Why, and Why Not. Journal of
References Finance and Investment Analysis 2 (3): 17-34.
[1] Bawa V. S., Brown S. J. and Klein R. W (1979). Estimation [10] Markowitz, H. M (1952). Portfolio Selection. Journal of
Risk and Optimal Portfolio Choice. North-Holland. finance 7: 77-91.
Amsterdam, the Netherland.
[11] Markowitz, H. M (1959). Portfolio selection Efficient
[2] Ceria, S. and Stubbs, R. A (2006). Incorporating estimation Diversification of Investments, Wiley, New York.
errors into portfolio selection: Robust portfolio construction.
Journal of Asset Management 7(2): 109-127. [12] Merton, R. C. (1980). On Estimation of Expected Return on
the Market: “An Exploratory Investigation”. Journal of
[3] Costa, O. L. V. and Paiva, A. C (2002). Robust Portfolio Financial Economics 8: 323-361.
Selection Using Linear-matrix Inequality. Journal of
Economic Dynamics and Control 26: 889-909. [13] Mulvey, J. and Erkan H. G (2003). Decentralized Risk
Management for Global P/C Insurance Companies. Working
[4] Drake, P. P and Fabozzi, F. J (2010). The Basics of Finance: paper. In: Applications of stochastic programming.
An Introduction to Financial Markets, Business Finance and Eds:Wallace S. W., Ziemba W. T. MPS-SLAM Series on
Portfolio Management. John Wiley and Sons, New Jersy. optimization, Philadephia, PA, 503-530.
[5] Frantz, P. and Payne, R. (2009). Corporate finance. Chapter 2. [14] Myles E. M (2013). A Simplified Perspective ofthe Markowitz
London: University of London Press. Portfolio Theory. Global Journal of Business Research 7 (1):
59-70
[6] Cornuejols, G. and Tutuncu, R. (2007): Optimization methods
in Finance. Cambridge University Press, Cambridge. [15] Schneeweis, T., Crowder, G., Kazemi, H., (2010). The new
science of asset allocation. Risk management in a multi-asset
[7] Goldfarb, D. and Lyenga, r G. (2003): Robust portfolio world. Hoboken, NJ: Wiley & Sons.
selection problems. Math. Opr. Res. 28:1-38.
[16] Tutuncu, R. H. and Koeing M.: Robust asset allocation. Annal
[8] Jagannathan, R. and Ma, T. (2003). “Risk Reduction in Large of Operations Research 132: 157-187.
Portfolios: Why Imposing the Wrong Constraints Helps”.
Journal of Finance 58: 1651-1684.