Efficiency Frontier

The Efficiency Frontier is a concept often used in economics and finance to illustrate the best possible trade-off between risk and return. Imagine a graph where one axis represents potential returns on investments, and the other represents the risk involved. The Efficiency Frontier is the curve that shows the optimal portfolios you can choose — those offering the highest returns for a given level of risk, or the lowest risk for a target return. Investments below this curve are considered inefficient, as there are better options available. Thus, it helps investors make informed decisions to maximize their gains while managing risks.