Stock 1 (%) | Stock 2 (%) | Stock 3 (%) | Stock 4 (%) | Stock 5 (%) | Expected Return (%) | Risk (Std Dev %) |
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The **Efficient Frontier** represents the best possible portfolios are those that provide **the highest return for the least amount of risk**.
A portfolio’s return is based on the returns of the stocks it contains, weighted by how much is invested in each.
- The **weight** of each stock determines its contribution to the portfolio. - The **expected return** reflects the potential gain from the portfolio.
Correlation measures how stocks move in relation to each other. It plays a key role in risk reduction:
The risk of a portfolio depends on:
Lower correlation leads to better diversification and lower overall risk.