Demonstrating Portfolio Frontier Formation and the Capital Allocation Line Using Interactive Graphing

Abstract

This paper shows how to use interactive graphing via scroll bars to create a two-security portfolio frontier and the Capital
Allocation Line. The frontier is enhanced via the use of spinners to control the correlation coefficient and the weight of risky
assets as well as data labels that track the weight of the stocks along the frontier as a scroll bar is incremented. The
VLOOKUP function is incorporated to lookup the calculated expected return and standard deviation of the risky portfolio at
a stock weight controlled by a spinner. The purpose of this paper is to aid instructors in explaining the concepts of
investment opportunity sets or frontiers, including the efficient and inefficient portions and riskless lending and borrowing to
students of investing.