EcoWin Asset Allocation EcoWin Asset Allocation is an add-on to EcoWin. The EcoWin Asset Allocation system is a powerful tool for analyses of risk and returns in financial investments. Some central studies that can be performed are made in the tradition called the Mean Variance Approach. The fundamental core of this idea is that financial instrument returns can be measured in two dimensions, expected returns and level of return uncertainty in the return i.e. returns and risks. The expected returns can be measured as the expected value of the uncertain returns. The degree of uncertainty, the risk, is measured as the standard deviation of returns, or the square of the standard deviation, the variance. The investor is supposed to be risk avert, i.e. that a higher risk must give a higher expected return. In the choice between two investments with the same expected returns the one with the lower risk is preferred. When the choice is between two alternatives at same risk level, the one with highest expected return is preferred. The next natural step is, from the set of possible portfolios, to point out the portfolios that risk avert investors find better then others. This means to describe the set of efficient portfolios. The set can be defined with or without restrictions on the proportions of the included instruments. The difficulty with an operational application of the above analysis is to find information on the expected return and the risk of instruments. The most common way to forecast these quantities is to use historical information on instrument returns. The fundamental assumption behind using such estimates is that these are applicable also for the future, i.e. over the horizon on which the forecast is done. In EcoWin Asset Allocation both expected returns as well as risks can be estimated from historical information. Furthermore the historical estimate of expected returns can be combined with the user’s opinion on future forecasted returns. For more information about EcoWin Asset Allocation see EcoWin Asset Allocation or contact EcoWin AB.