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Portfolio Theory

A portfolio of investments is an investment in different classes of assets.

If you only invest in one class of assets and unexpectedly performs badly, your return might be less than you have anticipated.

If you invest in different asset classes, the profits earned by one, are likely to compensate the lost on the asset with poor performance.

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How can you chose the best combination of assets to maximize your return?

When you chose where to invest you need to to take a look at the risk as well as the return expected to receive.

A portfolio riskiness can be measured calculating the standard deviation, of the returns you expected to receive.

As higher is the standard deviation, higher will be the risk.

The best investment will be on the asset with the lowest standard deviation, on the returns expected to receive. It's where your money will have a higher return.

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