Risk and Reward
An efficient frontier represents every possible combination of assets that maximizes return at each level of portfolio risk and minimizes risk at each level of portfolio return.
The above illustration depicts the typical relationship between risk and return. Generally, investors are expected to be compensated in returns for assuming higher levels of risk.
Asset allocation does not ensure a profit or protect against a loss. Standard deviation measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variability (and the risk) of the investment returns.
