Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Research, Quantitative Analysis, & Decision Science

Mean-Variance Analysis - Explained

What is a Mean-Variance Analysis?

Written by Jason Gordon

Updated at April 16th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Mean-Variance Analysis?How is a Mean-Variance Analysis Used? Sample Mean-Variance AnalysisAcademic Research on Mean-Variance Analysis

What is a Mean-Variance Analysis?

The Mean-variance analysis is otherwise called the modern portfolio theory. This is a theory that assesses the risks and expected return of an investment portfolio in order to match the expected return with a given level of risk. The mean-variance analysis weighs the risk of the portfolio, otherwise called the variance against the expected return. The mean-variance analysis is an important analysis for investors as it helps them determine the difference between the expected return of a portfolio and its variance. Since investors are constantly in search of a portfolio with higher returns and lower risks, this analysis helps them find their desired results.

Back to: RESEARCH, ANALYSIS, & DECISION SCIENCE

How is a Mean-Variance Analysis Used? 

The mean-variance analysis is an important process that helps investors make logical decisions pertaining to investment. With this analysis, investors can determine how much risks they are willing to take in exchange for an expected return. Once an investor knows his level of risk tolerance, making decisions about what portfolio to invest in becomes easier. The mean-variance analysis also facilitates the comparison of risk (variance) with the likely reward in an investment. This form of analysis is a crucial part of the modern portfolio theory. Hence, with mean-variance analysis, investors can make rational decisions about investing in securities with different expected returns and variance.

Sample Mean-Variance Analysis

Mean-Variance Analysis also allows investors to evaluate investments with the highest expected returns and risks. For instance, if an investor has an option to choose between the two portfolios with different degrees of risks and returns, the investor can do a Mean-Variance Analysis to decide which is more profitable. The correlation or relationship between the investments in the portfolios is also an indicator of which portfolio would be more favorable than the other.



mean-variance analysis

Was this article helpful?

Yes
No

Related Articles

  • Histogram - Explained
  • Management and Decision Making - Explained
  • Stochastic Modeling - Explained
  • Statistically Significant - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand