The Efficient Frontier

The upper branch of the feasible set is efficient.

highlighted = computed this step

Dominated and efficient parts

The lower branch below the minimum-variance point is dominated: another portfolio can offer more return for the same risk. The upper branch is the efficient frontier.

\text{efficient}=\text{upper branch after minimum variance}

The plot marks the minimum-variance portfolio at return 6.80% and rounded sigma 8.94%. Portfolios above that point form the efficient frontier.

r_{\min}=6.80\%,\quad \sigma_{\min}\approx 8.94\%

Model frontier

Efficient here means efficient under the stated return, sigma, and rho inputs. It is not an empirical estimate of what future portfolios will do. This is descriptive, not investment advice.

\text{frontier depends on stated inputs}