<P> Modern portfolio theory (MPT), or mean - variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk . It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type . Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return . It uses the variance of asset prices as a proxy for risk . </P> <P> Economist Harry Markowitz introduced MPT in a 1952 essay, for which he was later awarded a Nobel Prize in Economics . </P>

What is modern portfolio theory (mpt)