Mean-Variance Optimization
Mean-Variance Optimization (MVO) is a mathematical method that selects asset weights to minimize portfolio variance for a given target expected return (or to maximize expected return for a given level of risk) using estimated mean returns and the covariance matrix of asset returns.
Example: An analyst uses Mean-Variance Optimization to compute a set of weights for a five-asset portfolio given a target return and a covariance matrix estimated from historical returns; the result reflects the risk-return trade-off implied by the inputs.
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