AdvancedMAD Academy0:45Portfolio

An Idea Worth Knowing, and Its Limits

The frontier shows the best return available at each level of risk, computed from inputs nobody can actually know in advance.

0:45 · 6 scenes

This lesson is part of a MAD Academy plan.

What the Lesson Covers

  1. 0:00The efficient frontier is elegant, useful, and built on numbers nobody knows.
  2. 0:05The idea. For every level of risk there is a mix with the highest expected return.
  3. 0:14The real insight. Mixing imperfectly correlated assets can reduce risk without giving up return.
  4. 0:23The input problem. It needs expected returns, volatilities and correlations. All three are estimates.
  5. 0:32Why the output is unstable. Small changes in the expected return assumption swing the optimal weights wildly.
  6. 0:40Take the insight about correlation, not the precise weights.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
An Idea Worth Knowing, and Its Limits — MAD Academy Training Video · MadStockAlerts