# There's a curve in finance that most investors get wrong.
Canonical: https://social-archive.org/richeddy/Aq5APSRdr6
Original URL: https://x.com/quantscience_/status/2070481007619301658
Author: Quant Science
Platform: x
## Content
## 1 There's a curve in finance that most investors get wrong. It's called the efficient frontier. Markowitz defined it in 1952. Most investors still don't understand what it means in practice. Here's what they get wrong: {{IMAGE_0}} --- ## 2 ━━━━━━━━━━━━━━━━━ WHAT IT ACTUALLY IS ━━━━━━━━━━━━━━━━━ The efficient frontier is the set of portfolios offering the maximum expected return for a given level of risk. Mathematically: minimize w'Σw subject to a target return. Every point --- ## 3 ━━━━━━━━━━━━━━━━━ MISTAKE 1: OPTIMIZING ASSETS, NOT STRATEGIES ━━━━━━━━━━━━━━━━━ Most people run mean-variance optimization on a basket of stocks or ETFs. The problem: correlated assets give you an illusion of diversification. The real input --- ## 4 ━━━━━━━━━━━━━━━━━ MISTAKE 2: TREATING THE INPUTS AS FIXED ━━━━━━━━━━━━━━━━━ The frontier is only as good as your covariance matrix. Correlations shift. Volatility clusters. The matrix you estimated last year isn't the one you're trading --- ## 5 ━━━━━━━━━━━━━━━━━ MISTAKE 3: CONFUSING OPTIMIZATION WITH EDGE ━━━━━━━━━━━━━━━━━ Optimization doesn't create edge. It organizes it. If your underlying strategies don't have positive expectancy, no amount of mean-variance math will save you. --- ## 6 Want to learn Algorithmic Trading Strategies (that actually work)? On July 9th, we are hosting a free workshop to help you get started with algorithmic trading with Python. Register here (500 seats): https:// learn.quantscience.io/join https://t.co/WvcdcrmQCS {{IMAGE_1}} --- ## 7 That's a wrap! Over the next 24 days, I'm sharing my top 24 algorithmic trading concepts to help you get started. If you enjoyed this thread: 1. Follow me @quantscience_ for more of these 2. RT the tweet below to share this thread with your audience --- ## 8 P.S. - Want to learn Algorithmic Trading Strategies that actually work? I'm hosting a live workshop. Join here: https:// learn.quantscience.io/join https://t.co/WvcdcrmQCS