Minimum-variance portfolio
The combination of risky assets with the lowest possible variance: the leftmost point on the curve of possible portfolios, and where the efficient frontier begins.
Where you will meet it
Minimum-variance portfolio appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Work out the asset weights giving the lowest-variance mix of two risky assets
“Combining two risky assets traces out a curve of possible portfolios, and the point with the lowest variance is the minimum-variance portfolio.”
- Set out what the minimum-variance frontier and the efficient frontier are
“Its leftmost point is the global minimum-variance portfolio, and the portion above that point is the efficient frontier: no rational investor holds anything below it, because for every such portfolio there is another with the same risk and higher expected return.”
See also
Practise it
Practise minimum-variance portfolio until it is automatic: questions that explain every wrong option.
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