<P> Modern portfolio theory ( MPT ) , or mean - variance analysis , is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk . It is a formalization and extension of diversification in investing , the idea that owning different kinds of financial assets is less risky than owning only one type . Its key insight is that an asset 's risk and return should not be assessed by itself , but by how it contributes to a portfolio 's overall risk and return . It uses the variance of asset prices as a proxy for risk . </P>
<P> Modern portfolio theory ( MPT ) , or mean - variance analysis , is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk . It is a formalization and extension of diversification in investing , the idea that owning different kinds of financial assets is less risky than owning only one type . Its key insight is that an asset 's risk and return should not be assessed by itself , but by how it contributes to a portfolio 's overall risk and return . It uses the variance of asset prices as a proxy for risk . </P>
what is modern portfolio theory ( mpt )
what is modern portfolio theory ( mpt )
a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk
a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk