




Introduced by Nobel Prize winner Harry Markowitz in the 1950s, modern portfolio theory proposes that investors may minimize market risk for an expected level of return by constructing a diversified portfolio. Modern portfolio theory emphasizes portfolio diversification over the selection of individual securities. A simplified version of modern portfolio theory is "Don't put your eggs in one basket". Modern portfolio theory established the concept of the "efficient frontier." An efficient portfolio, according to modern portfolio theory, is one that has the lowest risk for a given level of expected return. An underlying concept of modern portfolio theory is that greater risk is associated with higher expected returns. To construct a portfolio consistent with modern portfolio theory, investors must evaluate the correlation between asset classes as well as the risk/return characteristics of each asset. Modern portfolio theory offers a disciplined approach to investing that is still widely used today.
Rate this modern portfolio theory definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: covered put, risk management, average price per share, deferred tax, dividends payable, retained earnings, 144a, 1031 exchange, diluted share, reverse mortgage, class C shares, inflation, Zero Cost Collar, FICO score, stock split, exdividend, quality assurance, in escrow, limit order, phantom income, annual return, 1035 exchange, APR, irrevocable trust, option premium, deferred revenue, VIX, Key Rate Duration, 401a, real GDP, EBITDA, LIBOR, margin rate, current ratio, stock market close, cancelled check, exdividend date, balance sheet, liquidity ratio, required rate of return, FTSE, labor relations, whollyowned subsidiary, implied volatility, per diem, command economy, debt service coverage, open position, minority interest


 