🎯 Purpose
The Markowitz Model (Nobel Prize 1990) finds the optimal
portfolio allocation that maximizes return for a given level of risk,
or minimizes risk for a given return.
📊 Core Concepts
1⃣ Risk vs. Return Trade-off
Higher returns usually come with higher risk. The model finds the
best balance for your preferences.
2⃣ Diversification Power
Combining assets with low correlation reduces portfolio risk
without sacrificing return. This is the "free lunch" of investing!
Portfolio Return:
Rp = Σ (wi × Ri)
Portfolio Risk (Variance):
σ²p = Σ Σ (wi × wj × Covij)
w = weight, R = return, Cov = covariance