Quant · Core
Efficient Frontier
The efficient frontier is the set of mean-variance-optimal portfolios — maximum expected return for each volatility, given the inputs.
Definition
Plot σ against E[r] for optimized weights. The upper left boundary is ‘efficient.’ Add a risk-free asset and you get the CAL and the tangency portfolio (CAPM’s market, in theory).
Why it matters
It is the picture allocators still want. It moves when you blink at the inputs.
Case
A 60/40 is inside the in-sample frontier and on the live frontier after costs. The chart did not include trading or estimation error.
How to read it
Ask which Σ and μ, and whether shorts and leverage are allowed. A pretty curve is not a mandate.
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