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
  CFA Level I · Quantitative Methods

  “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
  CFA Level I · Portfolio Management

  “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

Efficient frontier · Variance

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary