Portfolio Optimization: Risk and Return

This lecture covers the historical tradeoff between risk and return in large portfolios, the concept of portfolio returns uniquely defined by portfolio weights, the benefits of diversification in reducing risk, and the calculation of expected portfolio returns. It also explores the impact of correlation on portfolio risk, the effects of diversification on firm-specific and market-wide risks, and the implications of short sales on portfolio volatility. The lecture concludes with the identification of the tangent portfolio using the Sharpe Ratio and the strategies for reducing risk through risk-free assets.