No aspect of quantitative investment analysis is as widely studied or as vigorously debated as portfolio theory. Issues that portfolio managers have studied during the last 50 years include the following:
• What characteristics of a portfolio are important, and how may we quantify them?
• How do we model risk?
• If we could know the distribution of asset returns, how would we select an optimal portfolio?
• What is the optimal way to combine risky and risk-free assets in a portfolio?
• What are the limitations of using historical return data to predict a portfolio’s future characteristics?
• What risk factors should we consider in addition to market risk?
An efficient portfolio is one offering the highest expected return for a given level of risk as measured through many factors that affect the investor: factors such as age, economic availability, tendency to risk and the time perspective of the duration of the investment are the strong points on which to set up a performing portfolio.Formulas and Knowledge are taken from:DeFusco, Richard A. Quantitative Investment Analysis. Wiley, 2007.If you want to learn more click here