Modeling of stock returns of companies belonging to different industries and countries

The article considers a method of modeling of a stock portfolio’s returns, involving separation of industrial and systematic risk at the global and national levels. Various types of risk get distinguished by introduction of industrial and country stock indices into the structure of the pair copula. The proposed method allows combining advantages of the traditional CAPM and pair-copula structures. In the frameworks of solving the problem of a stock portfolio optimization, two methods of formation of the structure made of pair copulas have been tested: the traditional one that ensures the maximum of the sum of Kendall’s correlation ratios between return on assets, and the method of structuring based on industrial and country principle featuring introduction of stock indices into the model. The minimum of risk and the maximum of the Sharpe ratio were considered as optimality criteria of the stock portfolio. The model, structured by the industrial and country principles, showed a greater capital gain for the both indices. The proposed method of accounting the industrial and systematic risk can be useful for professional managers when forming an investment portfolio and improving its returns.