Modern portfolio theory has been at the heart of portfolio construction for over 50 years since it was developed in the 1950s by Harry Markowitz.
Central to modern portfolio theory is the concepts of diversification and market liquidity. Markowitz, who was awarded a Nobel Prize for the work, argued that the risk of a portfolio could be reduced and the expected rate of return increased when assets with dissimilar price movements are combined. The lower the correlation, the better for the risk-reward profile of the efficient frontier. This theory has been the basis of portfolio construction carried out by intermediaries for decades and is the same theory used by fund management groups to support the launch of many new strategies....
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