Our Efficient Frontier tool generates a chart of the portfolios that fall on the efficient frontier in terms of risk and expected return data. Your portfolio along with all of your individual positions is then inserted into the chart to illustrate where your portfolio performs in terms of the efficient frontier.
The portfolios and resulting Efficient Frontier chart which is generated tends to exhibit specific patterns and is impacted highly by the correlation of the constituent stocks. As a result, incorporating Efficient Frontier analysis is an excellent addition to the existing tools offered by Diversify Portfolio which focus on correlation, asset allocation and efficient portfolio construction.
Whether you're a short term trader or long term investor, knowing how the positions in your portfolio relate to each other is critical in determining optimal asset allocations. The following article discusses a few principles around correlation, allocation and portfolio diversification:
The Efficient Frontier provides a way to put the principles discussed in the above article into practice by analyzing the effect of differing correlations on stock portfolio performance. When the insight gained from the Efficient Frontier is combined with the existing Allocation Tool, you gain an incredible level of insight into optimal allocation for your stock portfolio.
We have several strategy and educational articles planned for the coming weeks which will show how Efficient Frontier, Modern Portfolio Theory and Correlation analysis can be tied together to create better performing, lower risk portfolios. These articles will be published on our blog and free mailing list which you can subscribe to here.
In addition to articles specific to the new Efficient Frontier tool, the mailing list gives you access to general strategy, education and stock market analysis articles which will benefit you even if you do not use any of our tools.
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If you're new to the concept of an Efficient Frontier, this article provides a good overview