Portfolio Theory
Modern Portfolio Theory
Definition
What is Modern Portfolio Theory?
A framework for combining assets based on expected return, risk, and correlation.
Example in practice
How This Looks in Practice
The framework shows why a diversified portfolio can be less risky than its individual holdings.
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Related Terms
Portfolio Theory
Capital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.
Portfolio TheorySecurity Market Line
A line showing the CAPM relationship between expected return and beta.
Portfolio TheoryEfficient Frontier
The set of portfolios offering the highest expected return for each level of risk under stated assumptions.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.