Mean-Variance Optimisation
Definition
What is Mean-Variance Optimisation?
A method that selects portfolioThe complete collection of investments owned by an investor or managed under one mandate. weights using expected returns, variances, and correlations.
Example in practice
How This Looks in Practice
The optimiser favours assets with attractive expected returns and diversificationSpreading investments across assets, issuers, sectors, or markets to reduce dependence on one exposure. benefits.
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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 TheoryEfficient Frontier
The set of portfolios offering the highest expected return for each level of risk under stated assumptions.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.