Refers to the body of innovations in portfolio management from the 1950s. The central plank of MPT is the concept of diversification - the fact that a well chosen group of assets can achieve a higher rate of return with a lower level of risk than any asset taken in isolation.
Another important concept is that of Market Risk. A fund´s risk can be split into two parts: on the one hand, variations due to movements in the stockmarket as a whole (described by
Beta), on the other hand, variations independent of broad market movements (specific risk).
Alpha,
Beta,
R-squared, Correlation, Volatility are statistics usually associated with MPT.
