Groundlearn / Glossary / Efficient frontier
Efficient frontier
A CFA term, defined in plain English with the distinction examiners test.
What it means
The set of portfolios offering the highest expected return for each level of risk.
The exam angle
Estimated from expected returns, variances and covariances — all of which are noisy. Small input changes produce wildly different "optimal" portfolios.
Where it appears in the syllabus
- Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Asset AllocationCFA Level III · exam weight 15–20% · Capital market expectations, allocation principles, real-world constraints.
Related terms
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- Capital market lineThe capital allocation line that runs from the risk-free asset to the market portfolio, the steepest available.
- CorrelationCovariance divided by the product of the two standard deviations, giving a unit-free number between −1 and +1.
- CovarianceA measure of how two variables move together.
- Minimum-variance portfolioThe combination of risky assets with the lowest possible variance.
- RebalancingTrading back to target weights after market moves have shifted them.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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