Stock Portfolio Selection through a Hybrid Approach of Martel & Zaras, MADM and Clustering Methods: The Case of Pharmaceutical Industries

In recent years, the stock market has been one of the most attractive and growing markets considering investment and profitability. But, deploying a scientific approach in this field has often encountered with many obstacles due to the variety and complexity of decision making criteria and methods in portfolio selection. This paper tries to suggest new approaches for portfolio selection problems based on MADM and clustering literature. Then, pharmaceutical companies in Tehran-Stock-Exchange have been ranked by means of a hybrid MADM-clustering approach. The results of this research reveal 4 main indices (including: leverage indices, efficiency ratio, liquidity ratio, market value ratio and activity ratio) as well as other 24 secondary indices which were effective on portfolio selection. Multi-criteria decision making and clustering methods were applied as the analysis tool of the paper. The case of this study includes pharmaceutical companies existing in stock market. The clustering results of companies would categorize them into two clusters in optimum conditions and, at the end companies in the ideal cluster would be ranked by means of Martel and Zaras method. The results indicate that Alborz Darou Pharmaceutical Company has been selected as the best pharmaceutical company due to its high scores in market value ratio and activity ratio. Successively, Damlaran Pharmaceutical Company was located in the second rank and after that, Exir and Ramak Companies were in the third rank. The applied method was a significant help for categorizing and ranking top companies by omitting a considerable amount of the study case. In spite of that it's recommended to take advantage of qualitative methods in addition to the quantitative ones.