Theoretical content In the developed securities market, Kyle Wirtz's portfolio theory has been proved to be effective and widely used in portfolio selection and asset allocation. China's theoretical and practical circles have been arguing endlessly. How to choose the combination of return and risk in securities investment decision-making is the core of portfolio theory. Portfolio theory studies how to choose and optimize one's own portfolio. Under a given expected return level, investors will maximize the expected return or minimize the expected risk.
Kyle Witz markowitz inherited the risk principle of traditional portfolio business returns, analyzed the distribution of securities returns, and assumed that it was reasonable for securities returns to follow the normal distribution. He quantitatively described the return and risk of a single security with two characteristics of mean and deviation, and verified the mean and deviation of portfolio return. The performance of the portfolio is a simple weighted average of the average performance of each component, but the performance change of the portfolio is not the weighted average of the performance change of the simple component. This is a huge change in the form of portfolio change, and the portfolio has discovered the mystery of reducing change and diversifying risks.
Before Kellway applied this theory, people realized that diversification could reduce risks, but they didn't know the system in theory. The distribution of portfolio shows that the securities dispersion of portfolio is not a simple linear combination. Therefore, portfolio distribution not only explains the rationality of diversification in theory, but also provides practical guidance for effective diversification.