Efficient Frontier
Definition
What is Efficient Frontier?
The set of portfolios offering the highest expected returnThe probability-weighted average of possible future returns or an estimate of future return. for each level of risk under stated assumptions.
Example in practice
How This Looks in Practice
An inefficient portfolioThe complete collection of investments owned by an investor or managed under one mandate. can be replaced by one with higher expected return at the same volatilityThe degree and frequency of price or return fluctuations..
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Related Terms
Capital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.
Portfolio TheorySecurity Market Line
A line showing the CAPM relationship between expected return and beta.
Portfolio TheoryMinimum-Variance Portfolio
The portfolio with the lowest expected variance among the available combinations.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.