ENHANCING PORTFOLIO EFFICIENCY USING PEG AND PEGC RATIOS UNDER THE MARKOWITZ EFFICIENT FRONTIER FRAMEWORK

Abstract

This study aims to compare the performance of investment portfolios constructed using the PEG (Price/Earnings to Growth Ratio) and PEGC (Price-Earnings Growth Consistent Ratio) under the Markowitz Efficient Frontier framework. The objectives of this study are threefold: first, to select securities based on PEG and PEGC criteria; second, to construct optimal investment portfolios using the Markowitz portfolio optimization approach, including the Minimum Variance Portfolio and the Maximum Sharpe Ratio Portfolio; and third, to evaluate and compare portfolio performance in terms of expected return, risk, and Sharpe Ratio.

The study utilizes stock data from the Stock Exchange of Thailand (SET), focusing on companies listed in the SET100 Index. Financial data, including P/E ratio, earnings per share (EPS), earnings growth, and stock price growth, were collected to calculate PEG and PEGC values. Securities meeting the selection criteria were included in the portfolio construction process. Monthly stock return data were used to estimate expected returns, standard deviations, and covariance matrices. Portfolio optimization was performed using Microsoft Excel Solver under the constraints of no short-selling and a maximum investment weight of 40 percent per security. The results indicate that portfolios constructed using PEGC outperform those constructed using PEG, particularly in terms of risk-adjusted performance measured by the Sharpe Ratio. In addition, PEGC portfolios exhibit better diversification benefits and generate an Efficient Frontier that dominates the PEG portfolio frontier across several risk levels. These findings suggest that incorporating price growth alongside earnings growth can enhance stock selection and improve portfolio efficiency under the Markowitz framework.

Keywords: PEG Ratio, PEGC Ratio, Markowitz Efficient Frontier, Portfolio Optimization, Sharpe Ratio