Modern Portfolio Theory and the Efficient Frontier
Effective portfolio diversification can increase returns while reducing risk.
The key to portfolio management is to select the portfolio from the efficient sets that fit the investors risk/reward preferences.
According to Prof. Harry Markowitz (1990 Nobel Prize Winner), by combining different assets, an optimal portfolio can be selected along an "efficient frontier".
An optimized portfolio provide a higher expected return at the same level of risk than any other alternatives.