Modern Portfolio Theory
July 12, 2023
Modern Portfolio Theory (MPT) is an investment framework developed by economist Harry Markowitz in 1952. It is a mathematical approach that aims to optimise the trade-off between risk and return in a portfolio of assets.
The core principle behind Modern Portfolio Theory is that an investor should not evaluate individual assets in isolation, but rather consider how they interact and combine within a portfolio. MPT posits that investors are rational and risk-averse, striving to maximise profits while minimising risk exposure.