Asset allocation is the most important step in the investment management process. AllocationADVISOR uses Harry Markowitz's mean-variance optimization to create a set of portfolios called the efficient frontier, which yield the highest expected return for a given level of risk. For more information about asset allocation, please see our article Asset Allocation.

As you move your cursor along the efficient frontier graph in AllocationADVISOR, the other graphs and tables in the workbook dynamically update to show the relevant statistics. This Data Cruise feature allows you to quickly see all of the information available for each portfolio along the frontier and to select portfolios based on that information. The Asset Allocation pie chart, for example, shows the percent allocations of the portfolios along the frontier.

To create an efficient frontier, you select the set of assets that represents possible investment choices. AllocationADVISOR allows users to select from two models to create the inputs for mean-variance optimization. The Historical Forecast Model calculates historical inputs based on the vast databases provided with StyleADVISOR and AllocationADVISOR. The sophisticated Black-Litterman Forecast Model creates inputs which, when used in mean-variance optimization, result in intuitive, diversified portfolios. For more information, see Black-Litterman Model.

AllocationADVISOR also allows users to enter multiple cases, or sets of inputs, into one workbook for the sake of comparison. You can, for example, display two efficient frontiers on the same graph.