The application of genetic algorithms for the selection of WSE companies in warsaw for an investment portfolio

Abstract

Portfolio analysis is a tool in particular, intended for investors. Risk assessment and risk specification make the investor able to diversify properly and offset the portfolio. Broadly speaking, there are multiple tools designed to create an efficient set of portfolios. One of them is Markowitz's model theory, postulating building up a portfolio to determine the basis of equilibrium between expected profit level as well as accepted level of risk assessment. In the context of this paper, the objective is to shed some light on creating investment portfolios based on either Markowitz's portfolio theory or an evolutionary algorithm. The simulation based methods for building up a portfolio of approximately 40-50 companies listed on the primary market of the Warsaw Stock Exchange using the specific selection function are presented. Portfolio profit values have been evaluated in a dynamically shifted time window. The conducted analysis showed shifts in the economy at certain periods of time. The implemented genetic algorithms smoothly handled the optimization with a relatively short processing time of the task result.