![]() ![]() There is also plotted a corresponding portfolio on the green PPC: it has the same expected return. The plot below (left panel) assumes a high-leverage 160.0% allocation the Market Portfolio it is the orange dot that lies on the CML. The new feature that I added is: you can select the allocation to the Market Portfolio, so that determines your location on the CML. The Market Portfolio plots as the red triangle the Market Portfolio has the highest Sharpe ratio. Their correlation, ρ(A,B) = 0.30, and the riskfree rate is 6.0 (primarily to give the plots strong features). The plots below happen to assume: For Asset A, μ(A) = +10.0%, σ(A) = 10%. ![]() The charts adjust, including I solve for the Market Portfolio (five years ago, I found the analytical solution using mathematica). My spreadsheet is dynamic: you only need to input two assets, their correlation and the riskfree rate. But an illustration might be better, so I quickly added a sheet to our CAPM learning spreadsheet ( draft version here, see image below).
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