Finding the Efficient Frontier using Monte Carlo simulations

According to the Modern Portfolio Theory, the Efficient Frontier is a set of optimal portfolios in the risk-return spectrum. This means that the portfolios on the frontier:

• Offer the highest expected return for a given level of risk,
• Offer the lowest level of risk for a given level of expected returns.

All portfolios located under the Efficient Frontier curve are considered sub-optimal, so it is always better to choose the ones on the frontier instead.

In this recipe, we show how to find the Efficient Frontier using Monte Carlo simulations. We build thousands of portfolios, using randomly assigned weights, and visualize the results. To do so, we use the returns of the four US tech companies from 202

How to do it...

Execute the following steps to find the Efficient Frontier using Monte Carlo simulations.

1. Import the libraries:

import yfinance as yf
import numpy as np
import pandas as pd

1. Set up the parameters:

N_PORTFOLIOS...