Implementation of Simulated Annealing Algorithm for Portfolio Optimization in Jakarta Islamic Index (JII) Stocks with Mean-VaR

Nadia Putri Riadi; Riaman Riaman; Sukono Sukono

doi:10.46336/ijqrm.v6i2.1016

Implementation of Simulated Annealing Algorithm for Portfolio Optimization in Jakarta Islamic Index (JII) Stocks with Mean-VaR

Nadia Putri Riadi, Riaman Riaman, Sukono Sukono

Abstract

One of the challenges for investors in the investment world is to manage the stock portfolio optimally. The main objective of portfolio optimization is to obtain maximum profit with a controlled level of risk. This study aims to find a portfolio combination that provides the best return with a more controllable risk than the conventional method, using Simulated Annealing. This research method applies the Mean-Value at Risk (Mean-VaR) approach in measuring portfolio performance and uses the application of the Simulated Annealing algorithm as an optimization method to determine the optimal investment weight on stocks in the Jakarta Islamic Index (JII), so as to obtain a portfolio with the best performance compared to a simple weighting strategy. The data used in this study is the daily closing price of stocks listed in the JII during the period January 3, 2022 - January 2, 2024. Based on the results and discussion, there are 7 stocks included in the formation of the optimal portfolio of JII index stocks, namely ADRO, ICBP, INKP, ITMG, MIKA, TPIA, and UNTR. The weight allocation of each stock generated by the Simulated Annealing method for the period is for ADRO shares 7,4177%; ICBP 1,7817%; INKP 7,3369%; ITMG 15,0006%; MIKA 2,5894%; TPIA 63,5506%; and UNTR 2,323%. The optimal portfolio of the Mean-VaR model with the Simulated Annealing method is generated when the risk tolerance is 0 (τ=0), with a return or return of 0,001923 and a VaR risk level of 0,029788. This approach is expected to be an alternative for investors in determining investment strategies based on Islamic stocks in Indonesia.

Keywords

Mean-VaR; Simulated Annealing; portfolio optimization; Jakarta Islamic Index

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DOI: https://doi.org/10.46336/ijqrm.v6i2.1016