Investment Planning: Asset Relocation 5 (Sharpe Optimization via Excel Solver)

This is the June-2010 Sharpe optimization.

Current Portfolio: Return = 3.28%, STDEV = 4.21%, Sharpe = 0.7471
Optimized Portfolio: Return = 3.44%, STDEV = 2.68%, Sharpe = 1.210
Solver improvement: Significant improvement on the STDEV results better sharpe ratio

Scenario 1: What happen if I invest EPF RM13,000 into PRSF?
Return = 3.22%, STDEV = 3.98%, Sharpe = 0.7573
No significant improvement on sharpe. However, EPF money is limited to invest in selected fund e.g. PRSF.

Scenario 2: What happen if I invest Cash RM13,000 into LPI?
Return = 3.30%, STDEV = 3.97%, Sharpe = 0.7773
No significant improvement on sharpe.

Scenario 3: What happen if I relocate RM13,000 from Genting to LPI?
Return = 3.38%, STDEV = 3.98%, Sharpe = 0.7960
No significant improvement on sharpe.

Scenario 4: what if I follow as per optimized?
Return = 3.44%, STDEV = 2.68%, Sharpe = 1.210
Significant improvement on sharpe. The result gives me a shock. 5-component-portfolio gives a better sharpe ratio than 13-component-portfolio. I might make a lot of mistakes that believe on investing more stocks will dilute the risk as the number of stock increases. My possible mistake in the past may be adding too many components that not really "diluting" the risk.

As I learn from here, risk-return research must be studied after the stock picking from fundamental selection. It is because you never know the characteristic of your good fundamental stock in helping the risk dilution or risk concentration.