[frontier-efficient] Efficient Frontier for Portfolio Optimization

[MarkusNeusinger]

Efficient frontier curve showing optimal portfolios that offer highest expected return for a given risk level. Key visualization for Modern Portfolio Theory with risk (std dev) on x-axis and return on y-axis.

[claude]

✅ Spec ID: frontier-efficient

Rationale: This ID follows the {type}-{variant} pattern where "frontier" describes the curve type and "efficient" specifies the Modern Portfolio Theory variant showing optimal risk-return portfolios.

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[github-actions]

✅ Specification Ready: frontier-efficient

PR: #3345

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specification.md

frontier-efficient: Efficient Frontier for Portfolio Optimization

Description

The efficient frontier is a fundamental visualization in Modern Portfolio Theory (MPT) that displays a curve of optimal portfolios offering the highest expected return for each level of risk (standard deviation). Portfolios on the frontier are "efficient" because no other portfolio exists with higher return for the same risk, or lower risk for the same return. This plot is essential for asset allocation decisions and understanding the risk-return tradeoff in investment portfolios.

Applications

• Portfolio managers selecting optimal asset allocations based on client risk tolerance
• Financial advisors demonstrating the benefits of diversification to investors
• Quantitative analysts comparing actual portfolio positions against theoretical optimums
• Academic research in finance and economics illustrating mean-variance optimization concepts

Data

• return (numeric) - Expected portfolio return (annualized, typically 0.0-0.3)
• risk (numeric) - Portfolio risk as standard deviation (annualized, typically 0.0-0.4)
• weight (optional, list) - Asset weights for each portfolio point
• Size: 50-500 simulated portfolios plus the efficient frontier curve
• Example: Randomly generated portfolios from 5-10 asset universe with historical return/covariance data

Notes

• X-axis should show risk (standard deviation), Y-axis should show expected return
• The efficient frontier curve should be clearly distinguished (thicker line, distinct color)
• Include random portfolio scatter points to show suboptimal portfolios below the frontier
• Mark key points: minimum variance portfolio, maximum Sharpe ratio (tangency) portfolio
• Optional: Show capital market line from risk-free rate tangent to frontier
• Color coding can indicate Sharpe ratio for scatter points

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[github-actions]

🚀 Specification Merged!

Specification: frontier-efficient
PR: #3345 (merged)

The specification is now in main and synced to PostgreSQL.

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