Portfolio theory
Explore how investments interact and the assumptions behind portfolio construction.
Browse the full library →What Diversification Does
Diversification spreads exposure across investments whose outcomes are not identical. It can reduce dependence on one issuer or source of risk, but it does not guarantee a profit or prevent losses across an entire market.
Concept explained · BeginnerWhat Is Asset Allocation?
Asset allocation is the distribution of a portfolio among asset categories such as stocks, bonds and cash. It describes the mix of exposures before the selection of individual securities inside each category.
Concept explained · BeginnerWhat Is Correlation?
Correlation summarizes the strength and direction of a linear relationship between two measured series. In portfolio analysis it often describes how returns move together over a specified history, not whether two assets are fundamentally the same.
Concept explained · BeginnerWhat Is Portfolio Rebalancing?
Rebalancing adjusts a portfolio toward a selected asset mix after market moves or cash flows have changed its weights. It is a method for maintaining exposure, not a guarantee of higher returns.
Theory explained · IntermediateEfficient-Market Theory
Efficient-market theory studies how available information is reflected in prices and what that implies for earning abnormal returns. It does not require that every price be perfectly correct or that future returns be predictable.
Theory explained · IntermediateModern Portfolio Theory
Modern portfolio theory evaluates investments as combinations of expected returns, variation and co-movement. Its efficient frontier contains portfolios that offer the highest modeled expected return for a given modeled risk, subject to the chosen assumptions and constraints.