Portfolio of Risk-Free and Risky Assets
An investor’s portfolio improves if a risk-free asset is added to the mix. In other words, a combination of the risk-free asset and a risky asset can result in a better risk–return trade-off than an investment in only one type of asset because the risk-free asset has zero correlation with the risky asset. The combination is called the capital allocation line.
Combining a Risk-Free Asset with a Portfolio of Risky Assets
Does a Unique Optimal Risky Portfolio Exist?
