The Feasible Curve - The Efficient Frontier Step by Step

As the weight varies, risk and return trace the feasible set.

highlighted = computed this step

Weights trace a curve

Let the weight in asset A vary from 0 to 1. Each weight gives an exact return and exact variance; sigma is the rounded square root used on the risk axis.

w_A\in[0,1]

The feasible set

The feasible set is the curve of risk-return pairs from those weights. The plot also shows the capital market line, which will matter after adding the risk-free asset.

(\sigma_p,r_p)\text{ as }w_A\text{ varies}

Rounded risk axis

The plotted risk coordinate is rounded sigma. The variance behind each point is exact rational arithmetic. The curve assumes the stated inputs and is descriptive, not investment advice.

\sigma_p=\sqrt{\sigma_p^2}