The Modern Portfolio Theory

Modern Portfolio Theory (MPT) is an investment framework developed by Harry Markowitz that emphasizes optimizing the balance between risk and return. It suggests that by diversifying a portfolio—investing in various assets—investors can reduce overall risk while aiming for the highest possible returns. MPT introduces the concept of the "efficient frontier," representing optimal portfolios that provide the best expected return for a given level of risk. The theory helps investors make informed decisions, balancing the potential for profit against the risks involved in their investment choices.