Minimum-variance portfolio

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Minimum-variance portfolio

The portfolio of risky assets with lowest variance.

Minimum-Variance Portfolio

A portfolio of individually risky assets that, when taken together, result in the lowest possible risk level for the rate of expected return. Such a portfolio hedges each investment with an offsetting investment; the individual investor's choice on how much to offset investments depends on the level of risk and expected return he/she is willing to accept. The investments in a minimum variance portfolio are individually riskier than the portfolio as a whole. The name of the term comes from how it is mathematically expressed in Markowitz Portfolio Theory, in which volatility is used as a replacement for risk, and in which less variance in volatility correlates to less risk in an investment.

References in periodicals archive ?

Let us denote [epsilon] as the weight of the lending tangency portfolio and (1 - [epsilon]) as the weight of the borrowing tangency portfolio used to construct a third portfolio on the envelope of minimum variance portfolios for a given expected return.

Solutions to the portfolio choice problem with VaR objective functions

In addition to risk parity, risk-based strategies include minimum variance portfolio theory and maximum diversification.

Frontier Equity Markets: Risk Parity Lessons for Asset Allocation

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