ESG-Informed Portfolio Allocation and Risk–Return Analysis: A Python-Based Comparison of 3:2:1 And 60:40 Strategies For Retail Investors in India

Abstract

The study assesses the performance of ESG-informed portfolio optimisation strategies relative to the 60:40 portfolio allocation approach in the period of 2014-2024 for retail investors. The study uses quantitative research methodology and secondary data from Indian financial markets to study the measures of return, volatility, diversification, risk-adjusted performance, long-term growth and downside risk using statistical and risk-adjusted portfolio analysis techniques using Python. The results show that the mean return and the compound annual growth rate of the 3:2:1 portfolio outperformed the mean return and compound annual growth rate of the 60:40 portfolio slightly. The 60:40 portfolios, however, showed favor in having lower volatility, lower beta, better Sharpe and Treynor ratios, higher alpha and better drawdown protection. The findings indicate that the inclusion of commodities slightly increases the long-term return potential of the portfolio, but does not necessarily lead to higher portfolio efficiency. Another area of focus of the study is the stabilizing effect of fixed-income exposure on diversified retail portfolio construction. The results add to the existing body of research on ESG-oriented investment strategies, sustainable finance and/or resilient retail portfolio allocation in emerging markets contexts.