Placing asset categories on the efficient frontier requires knowing their historical average return and standard deviation.

FORBES: Asset Allocation and the Efficient Frontier

Bullish sentiment is just slightly above one standard deviation from the historical average and bearish sentiment is within one standard deviation.

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Once you know the average return, the standard deviation of each index and the correlation coefficient between each pair of indexes, the rest is math.

FORBES: Asset Allocation and the Efficient Frontier

For example, two of eight American League clubs in 1927 posted winning percentages below .400, leading to a league-wide standard deviation of .123 percentage points above and below the average .500 record.

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Table 3 below provides a summary of the annualized standard deviation and returns for each asset class, the weighted average risk and return and the total portfolio risk and return from January 1979 through December 2009.

FORBES: Expert View

If you rank the countries of the world in terms of the academic performance of their schoolchildren, the U.S. is just below average, half a standard deviation below a clump of relatively high-performing countries like Canada and Belgium.

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