A combination of assets, i.e. a portfolio, is referred to as "efficient" if it has the best possible expected level of return for its level of risk (which is usually represented by the standard deviation of the portfolio's return). Here, every possible combination of risky assets, without including any holdings of the risk-free asset, can be plotted in risk-expected return space, and the collection of all such possible portfolios defines a region in this space. The positively-sloped (upward-sloped) part of the left boundary of this hyperbolic region is then called the "efficient frontier." The efficient frontier is the portion of the opportunity set that offers the highest expected return for any given level of risk, and lies at the top of the opportunity set (the feasible set).
|This economic theory related article is a stub. You can help Wikipedia by expanding it.|