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 ?
TABLE 4 Asset Correlations and Optimal Portfolio Weights, Returns, and Standard Deviations Entire Sample: 1993:Q4-2009:Q4 VLSI S&P 500 LT Corp Panel A: Correlations VLSI 1 S&P 500 0.067 1 LT Corp 0.020 -0.058 1 Panel B: Minimum Variance Portfolios Weight 3.24% 24.68% 72.08% Return 1.96% 1.36% 1.69% St.
Measuring the performance of the secondary market for life insurance policies
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
Once the probability measure and the pricing rule are established, we shall look for minimum variance portfolios. An interesting result seems to hold.
HOW FINANCIAL THEORY APPLIES TO CATASTROPHE-LINKED DERIVATIVES--AN EMPIRICAL TEST OF SEVERAL PRICING MODELS. [*]
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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