An integrated CRITIC and Grey Relational Analysis approach for investment portfolio selection

• Published in: Decision analytics journal 2023-09, Vol.8, p.100285, Article 100285
• Main Authors: Silva, Natan Felipe, dos Santos, Marcos, Gomes, Carlos Francisco Simões, de Andrade, Lélis Pedro
• Format: Article
• Language: English
• Subjects: CRITIC; CRITIC-GRA; Grey Relational Analysis (GRA); Investments; Mean–variance; Portfolio selection; Sharpe ratio
• ISSN: 2772-6622; 2772-6622
• DOI: 10.1016/j.dajour.2023.100285

The selection of investment portfolios is a complex problem, encompassing multiple and conflicting criteria. We propose an integrated multi-criteria decision-making (MCDM) model composed of the Criteria Importance Through Intercriteria Correlation (CRITIC) method and Grey Relational Analysis (GRA). The proposed CRITIC-GRA model considers a series of financial indicators to assess investment alternatives, aiming to select the best options for inclusion in an investment portfolio. Data were collected from the Economatica database, and 190 companies with shares listed on the Brazilian stock exchange were selected as investment alternatives. Ten financial criteria were identified through a comprehensive literature review for use in the integrated model. To validate the proposed approach, the alternatives chosen using the method were incorporated into an optimization model, applying mean–variance analysis to define the investment weights. The results were then compared with a market benchmark, considering risk, return, and the Sharpe ratio. The portfolio selected in the study surpassed the benchmark in both risk and return. •We consider Portfolio allocation with the media-variance model.•We consider the risk, return, and Sharpe ratio in a benchmarking model.•We validate the selected investment portfolio through comparison with a market benchmark.•We show the portfolio selected in the study exceeds the market benchmark in multiple aspects.