An Optimization Model for Risk Minimization in Stock Portfolio Selection

Authors

  • Khaled Alkhaledi Industrial and Management Systems Engineering, Kuwait University, Kuwait, Kuwait
  • Doraid Dalalah Industrial Engineering, Jordan University of Science and Technology, Ar-Ramtha, Jordan

DOI:

https://doi.org/10.23055/ijietap.2025.32.5.10833

Abstract

Stock portfolio selection is a challenging task for investors due to its multidimensional aspects. Investors always aim to maximize the expected return on their investments while maintaining a reasonable level of risk. Therefore, the appropriate choice of stocks is vital to achieving the desired return with minimal risk in financial markets. The objective of this study is to help answer the question of how to invest a specific amount of money across a range of assets in the safest and most effective way to achieve the maximum desired return with the minimum risk. A linear optimization model was developed to minimize overall investment risk, subject to realistic constraints such as the expected total return and investment ratios among different asset categories. To validate the model, a group of well-established securities was selected from various industries in the United Arab Emirates. Historical data spanning five years were collected for each stock category. In this study, stocks were grouped into five categories: construction, transportation, logistics, telecommunications, and banking. The optimization model was solved using Excel Solver with the simplex method. The results showed that the investment proportions satisfied all constraints, the objective function was optimized, and the best stock portfolio was determined. The model can help investors identify optimal portfolio allocations that achieve a target return while minimizing risk.

Author Biography

Doraid Dalalah, Industrial Engineering, Jordan University of Science and Technology, Ar-Ramtha, Jordan

Dalalah received his BSc in mechanical engineering from Jordan University of Science and Technology. He received his master degree in industrial engineering from Jordan University in 1999. He worked as a maintenance engineer at Jordan Cement Factories till 2000. Doraid finished his Ph.D. degree from Lehigh University-USA in industrial and system engineering, 2005. Currently, Dalalah is an associate professor at the department of Industrial Engineering and Engineering Management at the University of Sharjah. His research interests include Parallel Computations, Optimization and Simulation systems.

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Published

2025-10-10

How to Cite

Alkhaledi, K., & Dalalah, D. (2025). An Optimization Model for Risk Minimization in Stock Portfolio Selection. International Journal of Industrial Engineering: Theory, Applications and Practice, 32(5). https://doi.org/10.23055/ijietap.2025.32.5.10833

Issue

Vol. 32 No. 5 (2025)

Section

Modelling and Simulation

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