Analyzing Portfolios
Portfolio managers concentrate their efforts on achieving the
best possible trade-off between risk and return. For portfolios constructed
from a fixed set of assets, the risk/return profile varies with the
portfolio composition. Portfolios that maximize the return, given
the risk, or, conversely, minimize the risk for the given return,
are called optimal. Optimal portfolios define a line in the risk/return
plane called the efficient frontier.
A portfolio may also have to meet additional requirements to
be considered. Different investors have different levels of risk tolerance.
Selecting the adequate portfolio for a particular investor is a difficult
process. The portfolio manager can hedge the risk related to a particular
portfolio along the efficient frontier with partial investment in
risk-free assets. The definition of the capital allocation line, and
finding where the final portfolio falls on this line, if at all, is
a function of:
Financial Toolbox software includes a set of portfolio optimization
functions designed to find the portfolio that best meets investor
requirements.
 | Portfolio Analysis | | Portfolio Optimization Functions |  |
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