Constant correlation model for optimal portfolio formation and expected shortfall risk measurement4Dempirical evidence from Indonesian Stock Marke

Stock investment is one option of investment choice with risks. Investors can reduce their risk by combining several stocks and then forming a portfolio. One method to form an optimal portfolio is by using the Constant Correlation Model (CCM) method. The CCM method focuses on the correlation between stocks and the Excess Return to Standard Deviation (ERS) value. Calculation of risk in the portfolio can use the Expected Shortfall (ES) method. ES is defined as a loss with a value exceeding VaR. ES is considered appropriate for measuring portfolio risk compared to VaR because it fulfils the subadditivity property. The subadditivity shows the advantage of portfolio formation. The object of this research is to form an optimal portfolio using the CCM method and ES risk measure on the Indonesian Stock Market Indices, that is IDX30 index. The daily return of IDX30 Index is analysed for the period January 2021 - December 2022. The formed portfolio contains 3 stocks, namely BMRI with a weight of 46.263%, KLBF of 39.255%, and MDKA of 14.482%. The Expected Shortfall value at a trust level of 95% is 5.408% for the next week.