Can there be a portfolio above the efficient frontier?

Portfolios that lie below or to the right of the efficient frontier are considered sub-optimal. That’s because the rate of return isn’t high enough to justify the risk. Profiles that lie above the frontier are optimal, and returns balance out the risk.

Why don’t you select any portfolio’s over or above the efficient frontier?

Every other portfolio that does not reside on the efficient frontier is not as efficient because it offers the same return as a portfolio on the efficient frontier but by taking a higher risk. Any other portfolio is therefore inferior to the portfolios on the efficient frontier.

Are all points on the efficient frontier attainable?

The only attainable portfolio is on the efficient frontier, and thus, provides the greatest satisfaction to the investor. The optimum portfolio will yield the highest return for the amount of risk that the investor is willing to take.

How many portfolios are on efficient frontier?

According to Markowitz, for every point on the efficient frontier, there is at least one portfolio that can be constructed from all available investments (with the expected risk and return corresponding to that point).

Why is the efficient frontier concave?

The efficient frontier is a curved line. It is because every increase in risk results in a relatively smaller amount of returns. In other words, there is a diminishing marginal return to risk, and it results in a curvature.

What is the importance of efficient frontier?

Significance of an Efficient Frontier It helps investors understand the potential risks and returns in their portfolios and analyze how they compare to the optimal set of portfolios that are considered to be efficient.

Why is the efficient frontier curve?

Where are portfolios located on the efficient frontier?

Where portfolios are located on the efficient frontier depends on the investor’s degree of risk tolerance. The efficient frontier is a curved line. It is because every increase in risk results in a relatively smaller amount of returns. In other words, there is a diminishing marginal return to risk, and it results in a curvature.

What is an efficient frontier in finance?

The efficient frontier A portfolio frontier is a graph that maps out all possible portfolios with different asset weight combinations, with levels of portfolio standard deviation According to the mean-variance criterion, Portfolio A is a better choice than Portfolio B if E (R) A ≥ E (R) B and σ A ≤ σ B.

Why is the efficient frontier a curved line?

The efficient frontier is a curved line. It is because every increase in risk results in a relatively smaller amount of returns. In other words, there is a diminishing marginal return to risk, and it results in a curvature.

Can diversification create an efficient portfolio on a curved line?

Diversifying the assets in your portfolio leads to increased returns and decreased risks, which leads to a portfolio that is located on the efficient frontier. Therefore, diversification can create an efficient portfolio that is located on a curved line. How Does an Efficient Frontier Work?