Stodder, Efficient Frontier Portfolio Optimization – Finding the Efficient Frontier Theory, and a Practical Example

correlation coefficient correlation coefficient The correlation coefficient represents the direction and strength of the relationship The correlation coefficient represents the direction and strength of the relationship between two assets, and it takes on a value between –1 and 1. The signs of the correlation coefficient indicate the direction of the relationship Stodder, Efficient Frontier

Efficient Frontier Efficient Frontier

Stodder, Efficient Frontier The Efficient Frontier Non-Diversifiable Risk

Efficient Frontier Basic Strategy: Find the Standard Deviation ( σ i ) and Mean Return ( μ i ) of every stock Stock i. Find the Standard Deviation ( σ i ) and Mean Return ( μ i ) of every stock Stock i. For any given rate of return, find the minimal standard deviation portfolio that can achieve that return. For any given rate of return, find the minimal standard deviation portfolio that can achieve that return.

Stodder, Efficient Frontier Run Simulation From Financial Models Using Simulation and Optimization From Financial Models Using Simulation and Optimization by Wayne Winston: Ch. 16, “Portfolio Optimization”

Stodder, Efficient Frontier