Definition
The efficient frontier represents portfolios that provide the highest expected return for a given level of risk, or lowest risk for a given return. It's derived from Modern Portfolio Theory and forms the curved upper boundary of possible portfolio combinations. Portfolios below the frontier are suboptimal.
Example
An efficient frontier shows that for 10% target return, the minimum risk portfolio has 12% volatility. Taking more risk doesn't improve return.
FAQ
What is Efficient Frontier?
The set of optimal portfolios offering maximum return for each risk level.
Why is Efficient Frontier important?
Efficient Frontier helps investors evaluate portfolio management and make more informed decisions.