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Efficient Frontier

The efficient frontier is a concept in modern portfolio theory, which refers to a collection of optimal portfolios that offer the highest expected return for a specific level of risk, or the lowest risk for a given level of expected return.

In other words, portfolios that lie below the efficient frontier are considered sub-optimal because they do not provide enough return for the level of risk. Portfolios that cluster to the right of the efficient frontier are also sub-optimal because they have a higher level of risk for the defined rate of return.

Overall, the concept of the efficient frontier helps investors to identify the most favorable trade-off between risk and return for their investment strategy.

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