[Verse 1]
Harry's got a hundred thousand dollars to invest
Stocks and bonds are calling but he's feeling stressed
One stock might double or it might crash down
Risk and return dancing all around town
Expected returns tell us what we might make
But variance shows how much our hearts will shake
[Chorus]
Mean variance optimization, finding the best combination
Expected return up high, keep that risk from touching sky
Efficient frontier line, where the perfect portfolios shine
Mix your assets just right, sleep better every night
Mean variance optimization
[Verse 2]
Correlation is the magic word we need to know
When one stock falls does the other also go
Negative correlation helps us hedge our bet
Positive means they rise and fall together yet
Covariance matrix holds the data tight
Shows us how our assets dance in flight
[Chorus]
Mean variance optimization, finding the best combination
Expected return up high, keep that risk from touching sky
Efficient frontier line, where the perfect portfolios shine
Mix your assets just right, sleep better every night
Mean variance optimization
[Bridge]
Plot return on the Y, risk on X coordinate
Every portfolio becomes a point deliberate
The curve that forms shows efficient choice
Maximum return for risk gives investors voice
Markowitz showed us back in fifty-two
Modern portfolio theory breaking through
[Verse 3]
Don't put your eggs in just one basket case
Diversification saves you from that race
Twenty percent here, thirty percent there
Optimal weights chosen with mathematical care
Below the frontier you're leaving money behind
Above the line impossible to find
[Chorus]
Mean variance optimization, finding the best combination
Expected return up high, keep that risk from touching sky
Efficient frontier line, where the perfect portfolios shine
Mix your assets just right, sleep better every night
Mean variance optimization
[Outro]
From treasury bills to risky stock picks
Mean variance finds the perfect mix
Expected return minus risk you fear
Optimal portfolios crystal clear