• This portfolio generates the most return for every unit of risk taken
• Also is the most efficient portfolio
• Maximizes the Sharpe ratio (Sharpe Ratio)

Search for the portfolio weight that maximizes the portfolio's Sharpe Ratio

$w_{TP} = argmax_{w_p} \dfrac {E[r_p(w_p)-r_f]}{\sigma(r(w_p))}$

$\underbrace{w_{TP,t}}{500 \times 1} = \dfrac {\overbrace{\Sigma{r,t}^{-1}\times (\tilde\mu_{r,t} - r_{f,t} \times 1_{500})}^{500\times1}} {\underbrace{1_{500}^\top\Sigma_{r,t}^{-1}\times(\tilde\mu_{r,t} - r_{f,t} \times 1_{500})}_{1\times1}}$