Note: Negative weights imply short selling. If short selling is not allowed, these weights would need adjustment (e.g., setting negative to 0 and re-normalizing, or using advanced optimization).
Portfolio Characteristics:
Expected Portfolio Return:
Portfolio Volatility (Std. Dev.):
Understanding the Results:
This calculator determines the theoretical asset allocation for a 3-sector portfolio that aims to achieve the **Global Minimum Variance** (lowest possible risk/volatility) based on your inputs for expected returns, volatilities, and pairwise correlations.
Weights: Show the percentage allocation to each sector in this specific MVP. The calculation is for an unconstrained portfolio, meaning weights can be negative, which implies short selling that sector.
Portfolio Return & Volatility: These are the expected return and risk (standard deviation) of the calculated Minimum Variance Portfolio.
Key Assumptions & Limitations:
The accuracy of this analysis heavily depends on the quality and stability of your input estimates (expected returns, volatilities, and correlations). These figures are notoriously difficult to forecast accurately, and using historical data is not a guarantee of future outcomes.
The model provides an **unconstrained** solution. If negative weights appear, it means the theoretical MVP involves short selling. For portfolios restricted to long-only positions (no short selling), the true MVP would require different calculation methods (e.g., quadratic programming with constraints) and would likely have a higher variance than this unconstrained result.
This analysis does not consider transaction costs, taxes, or other real-world frictions.
This tool is for educational and illustrative purposes only and does not constitute financial or investment advice. Always conduct thorough research and consider consulting with a qualified financial advisor.
