👉 Purse math is a mathematical framework that quantifies the relationship between the size of a portfolio and its expected return, focusing on the covariance structure of asset returns rather than their individual variances. It simplifies portfolio optimization by expressing the expected return and risk (standard deviation) of a portfolio as linear combinations of the covariances between asset returns and the weights of those assets in the portfolio. This approach allows for efficient computation of optimal portfolios, especially when dealing with large numbers of assets, by leveraging the properties of linear algebra and matrix operations. Essentially, purse math provides a systematic way to balance risk and return in portfolio management, making it easier to construct portfolios that maximize returns for a given level of risk or minimize risk for a desired return.
