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    17 views6 pages

    Markowitz Portfolio Theory

    Uploaded by

    Pranit Jha
    presentation of markowitz

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 6

    Markowitz Portfolio

    Theory

    PRESENTED BY
    PRANIT KUMAR JHA
    MBA 3RD SEMESTER
    GU22R9888
    Introduction
    Markowitz Portfolio Theory
    • Markowitz Portfolio Theory is a mathematical model for constructing portfolios of
    assets.

    • Markowitz Portfolio Theory, developed by Nobel laureate Harry Markowitz in 1952, is


    a foundational framework for modern portfolio management and investment strategy.

    • The theory provides a systematic approach to constructing portfolios that aim to


    optimize the trade-off between risk and return

    key concepts of this theory is

    1. Risk and Return:

    2. Diversification

    3. Efficient Frontier

    4. Risk and Return Measurement

    5. Capital Market Line (CML) and Capital Allocation Line (CAL)


    Relationship between Risk and Return
    In portfolio management, there is a direct relationship between risk and return. Generally,
    higher risk investments have the potential for higher returns, while lower risk investments
    tend to have lower returns. This is because investors require compensation for taking on
    additional risk. However, it is important to note that higher risk also means a higher chance
    of losses, so investors must carefully assess their risk tolerance and investment goals before
    making investment decisions.
    Efficient Frontier

    The efficient frontier is a concept in finance that represents the set of optimal portfolios
    that offer the highest expected return for a given level of risk. It is a graphical
    representation of the risk-return tradeoff in portfolio management. The efficient frontier
    is derived from Markowitz Portfolio Theory, which emphasizes the importance of
    diversification and the relationship between risk and return in constructing an investment
    portfolio.

    Portfolio Optimization
    Portfolio optimization involves selecting the optimal mix of assets to maximize returns
    while minimizing risk.

    Asset Allocation
    Asset allocation is a key strategy in portfolio optimization, where investments are
    divided among different asset classes to achieve diversification
    Diversification
    Diversification is a risk management strategy that involves spreading
    investments across different assets to reduce risk.

    Spreading Risk
    By diversifying, investors can reduce the impact of any single investment
    on their overall portfolio. If one investment performs poorly, the impact is
    offset by the performance of other investments.

    Capital Market Line


    The Capital Market Line (CML) is a graphical representation of the
    relationship between risk and return for a portfolio that includes a risk-free
    asset and a risky portfolio. It helps investors understand the trade-off
    between risk and return and make informed investment decisions.
    Practical Implications:
    • Investors can use Markowitz Portfolio Theory to construct portfolios that
    match their risk tolerance and return objectives.

    • The theory provides a quantitative framework for asset allocation decisions,


    guiding investors in selecting the right mix of assets to achieve their financial
    goals.

    • Financial analysts and portfolio managers use optimization techniques to find


    the portfolios on the Efficient Frontier that best fit investors' preferences.

    THE END

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