A core idea of Modern Portfolio Theory, the efficient frontier plots optimal portfolios where you cannot increase return without taking on more risk. Portfolios below the frontier are sub-optimal because a better risk–return combination exists.
Formula
Maximise expected return for a given portfolio standard deviation (via diversification)
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Example
By combining assets that are not perfectly correlated, an investor can build a portfolio on the frontier with less risk than the weighted average of its parts.
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Relevant NISM series
CFA
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