Modern Portfolio Theory - MPT Definition
Modern Portfolio Theory (MPT) is an investment strategy that seeks to construct portfolios to optimize expected return by considering the relationship between risk and return. The theory emphasizes that risk is an inherent part of higher reward. The risk of a stock should be examined in relation to how that stock's price changes compared to the variation in price of the market portfolio. According to the theory first published by Harry Markowitz it is possible to build optimal portfolios offering the maximum possible expected return for a given level of risk.