What is the efficient frontier?
The efficient frontier is the curve of portfolios that earn the most expected return for each level of risk. Portfolios below it are wasteful — the same risk buys more elsewhere. It is traced from an estimate of how holdings move together, so it inherits whatever that estimate gets wrong.
How it works
Take a set of holdings and every long-only mix you could build from them. Each mix has a risk and an expected return, and plotting them fills a region. Only the upper-left edge of that region is interesting: for any risk level, one mix earns the most, and everything beneath it is taking the same risk for less.
The left end of the curve is the minimum-variance portfolio — the calmest mix available, and the only point that needs no view on returns at all. Moving right along the curve trades volatility for expected return. Where you stop is a preference, not a calculation.
The curve exists because holdings do not move in lockstep. Combining assets that zig and zag at different times produces a portfolio calmer than the average of its parts, and that diversification is the entire reason the frontier bulges leftward rather than being a straight line.
Every point on the curve is a real portfolio with real weights, which is the useful way to read one: not as a picture of theory, but as a menu. Where your current book plots against the curve is the question worth asking — a book sitting well inside it is paying for risk it is not being compensated for.
The honest limit is the input. The curve is traced from an estimated covariance and, once expected returns are involved, from your estimates of those too. It is a map of what those estimates imply, and it moves when they do.
Where you see this in the terminal
PORT · Risk tab(account required)the curve traced for a saved book, with the book itself plotted against it beside its risk decomposition
Risk-based allocatorsthe minimum-variance point at the curve's left end, and what it requires
The conventions behind it
What this page explains in plain language, the methodology documents state as conventions: the inputs, what is rejected, and the stated limits.
More of these: every concept page. The full transparency index is at Methodology.