A well managed portfolio accounts for return, volatility and correlations. It is also re-balanced over time.<p>But... What is a portfolio? The term portfolio refers to the combination of assets such as stocks, bonds, or cash. As a portfolio manager, your job is twofold:<p>Picking assets: decide which assets you will be part of your portfolio<p>Allocate capital: decide on how much capital you will allocate to each asset<p>Your job is to maximize the expected return and cut the risk of your portfolio.<p>Imagine that you have $100k and suppose you already selected a portfolio of 30 assets. How would you build your portfolio? i.e. how would you distribute you cash in the different assets?<p>PORTFOLIO SELECTION<p>Harry Markowitz was awarded a Nobel Prize in Economics for its Modern Portfolio Theory (MPT) he introduced in his 1952 paper "Portfolio Selection".<p>MPT forms the foundation for all subsequent theories on how risk is quantified. It still influence the way we invest today.<p>Risk-return trade-off is one of the basic concepts of Modern Portfolio Theory. An optimal portfolio does not include securities with the highest potential returns or with the lowest risk. It is a thin balance between the two: a mix of (i) securities with the greatest potential returns and of (ii) securities with the lowest degree of risk.<p>What are the expected returns and volatility of a portfolio containing the two assets? A linear combination of the two? Not necessarily. The values are a function of the correlation between the returns of the assets.<p>Glad to have your feedbacks on this