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Efficient Frontier

Modern Portfolio Theory (MPT) recognizes that investment returns also carry risks

Modern Portfolio Theory (MPT) recognizes that investment returns also carry risks

Efficient Frontier

by MSYapps
Efficient Frontier
Efficient Frontier

What is it about?

Modern Portfolio Theory (MPT) recognizes that investment returns also carry risks. When assembling a portfolio of risky assets, it is necessary to account for these two components as well as the correlation among the assets.

Efficient Frontier

App Details

Version
2.2
Rating
NA
Size
1Mb
Genre
Finance Education
Last updated
October 19, 2015
Release date
November 20, 2011
More info

App Store Description

Modern Portfolio Theory (MPT) recognizes that investment returns also carry risks. When assembling a portfolio of risky assets, it is necessary to account for these two components as well as the correlation among the assets.

When risky assets are combined in a portfolio, the expected return of the portfolio, E(Rp) is the weighted average of the returns for each asset. If the asset returns are not perfectly correlated, the expected risk of the portfolio is somewhat more complicated. By convention, standard deviation, the square root of the variance, is a proxy for asset risk

The Efficient Frontier plots in risk-expected return space every possible combination of assets A, B, and C. The upper edge of the curve represents each outcome for which the portfolio return is maximized for a given level of portfolio risk.

The ‘blue star’ shows the return along the efficient frontier at the risk level selected by the slider. Additionally, the shares of assets A, B, and C for the portfolio that produced this point are displayed to the right of the graph.