Modern Portfolio Theory

To summarize what has been covered so far, the true risk of an individual asset is not the asset's standard deviation but the incremental effect it has on the volatility of the overall portfolio return once it is included. When this incremental effect increases the portfolio's volatility,

that is, if an asset that moves in the same direction is added, risk actually increases; conversely, if an asset moves in the opposite direction and reduces the portfolio's volatility, risk decreases.

American economist James Tobin won the 1981 Nobel Prize in Economic Sciences for his contributions to portfolio theory.

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Topics: Investment
Category: Wiki/Economy