Finance Brain
Courses
Home
Sign in
← Fragility of Optimised Portfolios
1 / 4
Question
Why does mean-variance optimisation tend to produce concentrated, extreme portfolios when applied without constraints?
1
It requires assets to have positive correlations, eliminating diversification
2
It treats noisy estimated inputs as precise, concentrating the portfolio in assets with the largest estimation errors
3
It ignores covariances and focuses only on individual asset returns
4
The algorithm is designed to find corner solutions with single dominant assets
Press 1–4 to pick an answer
Finance Brain