10. The Efficient Frontier

Efficient Frontier

The efficient frontier for a given set of stocks gives us the set of portfolios that achieve the highest return for each level of risk. The efficient frontier also contains the set of portfolios that achieve the lowest level of risk for each level of return. We refer to these portfolios along the efficient frontier as market portfolios. As portfolio managers, we would be interested in finding the weights for each stock that create these market portfolios on the efficient frontier.

Minimum Variance Portfolio

The minimum variance portfolio is a single portfolio in the efficient frontier that has the lowest risk.