Two-Asset Markowitz Feasible Set

two-asset portfolios allowed

yes

no

asset 1

expected return Ε(

R

1

)

0.12

standard deviation

of the return

σ

1

0.2

asset 2

expected return Ε(

R

2

)

0.08

standard deviation

of the return

σ

2

0.1

portfolio weights

proportion invested

w

1

0.5

relationship between the returns

correlation coefficient

ρ

12

-0.5

aesthetics

plot range

fixed

automatic

Ε(

R

p

)

w

1

Ε(

R

1

)+

w

2

Ε(

R

2

)

σ

p



0.5



2

σ

1

2

w

1

+

2

σ

2

w

2

+2

σ

12

w

1

w

2



σ

p

= risk = 0.0866025 Ε(

R

p

) = return = 0.1

Set the "two-asset portfolios allowed" toggle to "yes" to visualize the relationship between risk and expected return for two-asset portfolios, for varying levels of expected return and risk for the two individual assets, and of the correlation between their returns.