This research addresses the gap in understanding the Vietnamese stock market’s diversification strategies and financial indicators. We examine how diversification constraints impact portfolio optimization, employing Value at Risk (VaR) as the risk measure. Our two-stage approach involves developing a robust model that maximizes investment levels while minimizing risk, and then integrating various diversification constraints (VaR and MILP). We prioritize measurable financial metrics (ROE, ROA, P/E, ROS) over industry benchmarks, aligning with Factor Investing to identify stocks with strong short-term potential. Our research addresses the lack of recent studies on portfolio optimization that consider both economic cycles and simulation techniques (Monte Carlo Stimulation), which are vital for navigating market uncertainties. We emphasize the importance of monitoring model stability using the Population Stability Index (PSI) across different economic phases. By integrating PSI with traditional metrics like Sharpe Ratio (SR), Calmar Ratio (CR), and Out-of-sample Mean Return (oMR), our study promotes a more thorough evaluation of portfolio optimization models for stronger investment strategies. Lastly, we found that Portfolio Optimization is not a one-size-fits-all solution. Our analysis underscores the importance of aligning your risk tolerance with the current economic phase and tailoring your model selection accordingly. A dynamic, diversified approach and expert financial advice will yield the best results.