Risk and Return: Using Portfolio Theory in Practical Situations

Lexin Chen ()
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Lexin Chen: The University of Nottingham, University of Nottingham Malaysia Jalan Broga

A chapter in Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024), 2025, pp 354-361 from Springer

Abstract: Abstract Harry Markowitz developed portfolio theory in 1952, and it is a cornerstone of contemporary finance. Its goal is to achieve optimal asset selection within an investment portfolio. As per the notion, traders may achieve the optimal balance between risk and reward by appropriately diversifying their assets among many beneficial classes. Portfolio theory allows for the construction of an investment set that increases value for a given level of risk or lowers risk for a given level of expected profits by examining the expected return and variances of individual assets as well as the correlations between them. To find optimal portfolios, this study selects Apple and Google as the two businesses to compute expected return, correlation, and usual deviation. This study advances the use of portfolio theory in practice by providing helpful information to traders who want to improve their technology investment techniques in the present turbulent market conditions. Although it has been criticized and changed over time, mean-variance efficiency (MPT) is a theory that has influenced investment strategies and banking procedures. It is based on the concepts of mean-variance optimization, productive frontiers, and the market for capital line, and it presumes that traders are rational and markets are efficient. Markowitz’s efforts had a big influence on real-world investment management and academic research. He founded the first stage of developing the Framework for Selling Property Items (CAPM) and other innovative approaches to investing.

Keywords: Contemporary Portfolio Theory; Hazard and Gain; The process of diversifying; Portfolio Administration (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-652-9_36

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