Efficient Frontier Calculator
Optimize portfolio allocation using Modern Portfolio Theory. Find the efficient frontier for maximum risk-adjusted returns.
Asset Parameters
Range: -1 (perfect negative) to +1 (perfect positive)
Efficient Frontier
Portfolio Optimization Results
Optimal allocation: 50% in Asset A, 50% in Asset B
Individual Assets vs Optimal Portfolio
Diversification Analysis
Good diversification potential. Combining these assets can reduce portfolio risk while maintaining or improving returns.
Efficient Frontier Calculator FAQ
What is the Efficient Frontier?
The efficient frontier represents the set of optimal portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given level of expected return.
What is Modern Portfolio Theory (MPT)?
MPT is a theory that helps investors maximize expected returns for a given risk level or minimize risk for a given return level through optimal diversification and asset allocation.
How Does Diversification Reduce Risk?
Diversification reduces portfolio risk by combining assets with different correlations. The efficient frontier shows how mixing assets can achieve better risk-return combinations than individual assets alone.
What is the Capital Market Line?
The Capital Market Line represents portfolios that combine the risk-free asset with the market portfolio (tangency point on the efficient frontier). It shows the optimal risk-return trade-off when borrowing/lending is possible.
How to Choose Your Optimal Portfolio?
Your optimal portfolio depends on your risk tolerance. Conservative investors choose points closer to the minimum variance portfolio, while aggressive investors may select higher-return portfolios on the frontier.
What are the Limitations of MPT?
MPT assumes normal return distributions, perfect markets, and known correlations. In reality, markets are imperfect, correlations can change, and investors may not behave rationally.
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