Risky business: Modern Portfolio Theory aims to reduce risk in a portfolio without sacrificing returns
At MoneyGeek, we use a variation of Modern Portfolio Theory (MPT) extensively to construct our portfolios. In this article, I will explain what MPT does.
Optimizing A Portfolio Of Two Stocks
Let me explain MPT by way of a hypothetical example. Let's say we have two stocks from corporations ABC and XYZ. Both stocks trade at $10 per share in year 0.
At the end of year 1, ABC goes down by 20%, while XYZ goes up by 50%. In year 2 ...