The efficient frontier is a concept in modern portfolio theory that represents the set of optimal portfolios offering the highest expected return for a defined level of risk. It is a graphical representation that helps investors understand the trade-off between risk and return, guiding them to make informed investment decisions.

Efficient Frontier

efficient frontier

Modern Portfolio Theory (MPT) is a framework for constructing a portfolio of assets that maximizes expected return for a given level of risk, or equivalently, minimizes risk for a given level of expected return. It emphasizes diversification to optimize the risk-return trade-off through the efficient frontier, a curve representing optimal portfolios that offer the highest expected return for a defined level of risk.

modern portfolio theory

optimal portfolios

highest expected return

defined level of risk

Graphical representation is a visual method of presenting data or information, allowing for easier interpretation and analysis by highlighting patterns, trends, and relationships. It encompasses various forms such as charts, graphs, and diagrams, each suited to different types of data and analytical needs.

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