Analysis and implementation of tracking efficient method to LQ45 stock index portfolio optimization

Tracking Efficient (TE) method is applied in forming portfolio that has a similarity with the market index (represented here by LQ45 Stock Index). In forming a portfolio, TE uses historical data in certain period of time. Parameter ß is used as stock relative measure to market index and it shows stock level of return towards the market index. By choosing an appropriate ß, the portfolio will has high similarity with market index. Based on the experiment results, ß in range around 1 give higher Index of Similarity than in range greater than 1. Comparing with Mean Variance (MV), Tracking Efficient can reach Index of Similarity 99.66% while Mean Variance can reach 99,14% for evaluation data with 21 stocks included. In the other hand, risk portfolio between Tracking Efficient and Mean Variance have no significant difference. By Adding some of stocks in portfolio, it consistent with Index of Similarity but inverse with risk value of portfolio.