Modern portfolio theory is a practical way of maximising expected returns, at a given level of risk. Created by Nobel Prize laureate Harry Markowitz, he argues that risk and return should not be viewed independently. By evaluating both risk and return, an investor can construct a portfolio with multi assets that will result in greater return, without an increased risk.
The main gist of Modern Portfolio Theory is:
1.Calculate mean returns over a period for an asset
2.Calculate standard deviation (risk) of an asset over a period
3.Get the weighted sum of expected returns and risk of all assets in a portfolio
4.Repeat multiple times for different weights
5.Find the efficient frontier that maximises reward and minimises risk