This applet looks at building a portfolio from two risky investments, S and B, (for stocks and bonds) and a risk free investment, RF. For each investment we have a rate of return [math]r[/math], and a value of risk [math]\sigma[/math].[br]We also need to know [math]p[/math], the correlation of the risk between the two risky investments.[br]For a given correlation we get a curve connecting S and B giving the possible risk and return of an investment made by combining these investments. If the two risks are perfectly correlated, the curve is a straight like. If the are inversely correlated, the curve is a pair of line segments that meet on the rate of return axis..[br]We need to decide a weight of the money we put in S vs B, giving a combined investment C.[br][br]Once we have C we need to weight the investment between C and RF. That gives IP as pour combined investment.[br][br]For an optimal investment strategy, we want to choose the weight between S and B such that the line between RF and C is tangent to the investment curve.