Mean-variance optimization is a mathematical framework used to construct an investment portfolio that aims to maximize expected return for a given level of risk, or alternatively, minimize risk for a desired level of return. This approach relies on the statistical relationship between the expected returns and the variances and covariances of asset returns, allowing investors to make informed decisions about asset allocation. The goal is to create an efficient frontier, where portfolios are positioned in such a way that they achieve the best possible returns for their respective risk levels.
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