Efficient frontier
The combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.
Markowitz Efficient Frontier
A graphical representation of the set of portfolios giving the highest level of expected return at different levels of risk. Harry Markowitz theorized that each level of risk contains one combination of assets giving the highest expected return. An efficient set of portfolios is represented as a line on a graph with risk as the x-axis and expected return as the y-axis; this representation is the Markowitz efficient frontier. See also: Markowitz Efficient Portfolio, Homogeneous Expectations Assumption.
Efficient Frontier
What Does Efficient Frontier Mean?
A line created from the risk-reward graph, composed of optimal portfolios that reflect various portfolio diversification strategies ranging from a most conservative all-cash portfolio to a most aggressive all-equity portfolio.
Investopedia explains Efficient Frontier
The optimal portfolios plotted along the curve have the highest expected return possible for the given amount of risk.
Related Terms:
• Asset Allocation
• Diversification
• Modern Portfolio Theory—MPT
• Risk
• Risk-Return Trade-Off
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