The Study Of Portfolio Strategy Based On The Industry Chain

The traditional method of constructing a portfolio bases on the Markowitz's mean-variance theory and CAPM model. It uses the estimation of parameters such as expected return, variances and beta to construct the optimal portfolio. However, due to the presence of parameter estimation risk, the result of the portfolio is often unstable. In this paper, from the perspective of logical analysis and combined with the industry chain theory, we propose a portfolio strategy based on the industry chain. By investing in the upstream and downstream companies on the industry chain at the same time, the portfolio's profit performance should be stable, with the inference that its market performance should be stable too. We analyze the industry chain relationship between the China's listed companies to find out the suitable industrial chains for investment. After that we form a portfolio based on the industry chain. The results show that the portfolio based on the industry chain has a good Sharpe ratio and Jensen Measure, and beats the market index with a large probability, which shows the portfolio based on the industry chain is better than the market portfolio. Also we find that as holding periods increase, the probability of the portfolio outperforming the market increases. When the holding period is one year, this probability even is more than 90%. With the fact that investors pay more attention to annual reports than semi-annual reports and quarterly reports, it is showed that the more attention investors pay to the company's profit performance, the better the portfolio based on industry chain performs. This also supports our inference that portfolio's better profit performance expectation leading to better market performance.