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Portfolio theory

• Evaluates the reduction of nonsystematic or diversifiable risks through the selection of securities or other instruments into a composite holding or efficient portfolio. This efficiency means that a portfolio would offer lower risks or more stable returns for a targeted return level. Instruments that have independent returns lower nonsystematic risks. Also, instruments that are inversely related on a return basis reduce the diversifiable risks. The basic theory assumes that returns are independent, investor expectations are homogeneous, and that the normalized probability distributions are stable.

 
 

Follow this link for all the terms related to portfolio.

 
 Embedded terms in definition
 Basis
Distributions
Diversifiable risk
Efficiency
Efficient portfolio
Expectations
Homogeneous
Instruments
Investor
Nonsystematic risk
Offer
Portfolio
Probability distribution
Probability
Return
Securities
Systematic risk
 
 Related Terms
 

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