2025, Vol. 8, Issue 2

This study aimed to introduce the entropy measure based on the univariate kernel density function, due to its importance in formulating the returns of the investment portfolio for the banking sector, which is characterized by random returns and does not follow a normal distribution. This makes prediction using traditional measures (such as mean and standard deviation) questionable, as they assume a normal distribution. The research sample consisted of 24 commercial banks within the banking sector for monthly returns in 2024. The study proved that the monthly returns of banks do not follow a normal distribution and demonstrated the ability of the entropy measure to formulate an investment portfolio that aligns with investor expectations and actual returns. It also showed that it can diversify investment portfolios between conservative and risk-taking portfolios. Therefore, the study recommended adopting non-traditional measures such as entropy when predicting price movements and returns and formulating investment portfolios, as such measures avoid unrealistic assumptions that affect the correct selection of stocks.