Asset inclusion rule in a portfolio

CFA Level I Portfolio Management
#1

Hello,

Can anyone clarify the intuition behind the formula below and how it fits with the capital allocation line framework?

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Thanks,

#2

If you want a clarification, then it sounds like you’re looking for understanding, not intuition.

#3

then maybe you can help with both :sweat_smile: ?

#4

This has lots of that lovely aljibber and sigma notation - but ain’t nobody got time for that!!! :-1:

https://onlinelibrary.wiley.com/doi/pdf/10.1002/pamm.200700221#:~:text=By%20applying%20the%20Sharpe%20rule,of%20the%20VaR%20and%201.

#5

Thank you very much!

#6

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This may not be 100% accurate but it may help understand