Established in 1952, Modern Portfolio Theory (MPT) argues that a single investment’s risk and return characteristics shouldn’t be viewed alone. Rather, they should be analyzed based upon how the investment affects the health of the overall portfolio in terms of risk and return. MPT shows that investors can build custom portfolios of multiple assets that maximize returns for a given level of risk. MPT is especially useful for investors trying to build diversified portfolios, and the growth of exchange traded funds (ETFs) made MPT even more relevant.
Modern Portfolio Theory
We don't know everything about the markets. We're just devoted to learners. Taken from those smarter than ourselves, here's how we define Modern Portfolio Theory.