Resampled efficient frontier
Imagine you have a bunch of toys and you want to organize them in a way that makes sense. You decide to group them by how much fun you can have playing with them and how risky it is to play with them. This way, you can choose which toys to play with depending on your mood and how much you're willing to risk.
Similarly, when we invest our money, we want to organize our investments in a way that makes sense. The resampled efficient frontier is a way to organize investments based on how much return we can expect and how much risk we're willing to take.
But what is an efficient frontier, you ask? Well, let's imagine that you have a bunch of different investment options - some are stocks, some are bonds, some are cash. Each investment has a certain expected return (how much money you can expect to make) and a certain level of risk (how likely it is that you won't make as much money as you expected). By plotting all these options on a graph with expected return on one axis and risk on the other, we can draw a line that connects all the possible combinations of return and risk that we could have by investing in these options. This line is called the efficient frontier because it represents the most efficient combination of risk and return.
Now, the resampled efficient frontier takes this a step further by not just looking at the expected return and risk of each investment option once, but by doing it many times (resampling) and plotting all the different efficient frontiers that we could get based on different combinations of investment options. This way, we can get a better idea of the range of possible returns and risks we could face when investing our money.
To sum it up: The resampled efficient frontier is a way to organize investments based on how much return we can expect and how much risk we're willing to take. It does this by plotting all the different investment options on a graph many times and drawing the line that represents the most efficient combination of risk and return based on all those possibilities.
Similarly, when we invest our money, we want to organize our investments in a way that makes sense. The resampled efficient frontier is a way to organize investments based on how much return we can expect and how much risk we're willing to take.
But what is an efficient frontier, you ask? Well, let's imagine that you have a bunch of different investment options - some are stocks, some are bonds, some are cash. Each investment has a certain expected return (how much money you can expect to make) and a certain level of risk (how likely it is that you won't make as much money as you expected). By plotting all these options on a graph with expected return on one axis and risk on the other, we can draw a line that connects all the possible combinations of return and risk that we could have by investing in these options. This line is called the efficient frontier because it represents the most efficient combination of risk and return.
Now, the resampled efficient frontier takes this a step further by not just looking at the expected return and risk of each investment option once, but by doing it many times (resampling) and plotting all the different efficient frontiers that we could get based on different combinations of investment options. This way, we can get a better idea of the range of possible returns and risks we could face when investing our money.
To sum it up: The resampled efficient frontier is a way to organize investments based on how much return we can expect and how much risk we're willing to take. It does this by plotting all the different investment options on a graph many times and drawing the line that represents the most efficient combination of risk and return based on all those possibilities.