Hi everyone,
Are the points in the efficient frontier necessarly constituted of all available assets in the investment universe, and with the exact allocation they have in that investment universe? Meaning that we can’t get a better return for a given level of risk, if we make an allocation different from the market allocation (it’d be below the efficient frontier)? If my investment universe is S&P500, the efficient frontier is necessarly constituted of portfolios containing all S&P500 stocks with an allocation replicating their exact weightings in the S&P500?
Or we can have an efficient frontier with allocations ignoring some components (giving a weighting of 0%) of S&P500 (our investment universe for this example)?
Thanks!
I’ve just found this graph

Makes me even more confused about what the hell is the efficient frontier…
No.
All available assets in the investment universe with the exact allocation they have in that universe gives . . . wait for it . . . one portfolio.
Not a continuum of portfolios.
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Thanks S2000magician. This totally makes sense.
What about the optimal risky asset (AKA the market portfolio)? I know it is the point of the efficient frontier that is tangent to the CML. But is there anything more intuitive i can put behind it?
Given the CML (combination of risk free asset and a portfolio of investable assets), the optimal risky portfolio is the best 100% exposure to investable assets i can get, because it is the only one that lies over the CML, other ones on the efficient frontier are all dominated by the CML. Is this correct?