Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• 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.
  
  Back