This model is based on the basic implementation of Markowitz Portfolio Theory which enables the evaluation of the efficient frontier for one optimal portfolio to be selected given your risk-reward utility function. The first step in this process is to build the interrelation between risk and return of multiple portfolios constructed from assets taken from your current portfolio. After the set of possible portfolios on the frontier is determined, the 'best-fit' portfolio for your utility function is selected. The process goes through the following 5 steps:
1. Construction of the covariance and correlation matrixes
2. Estimation of the expected return
3. Evaluation of historical volatility
4. Building of the efficient frontier
5. Picking one portfolio from the frontier for your specified risk level
 

Search macroaxis.com