 Modern portfolio theory

Mean-variance optimization balances expected linear return against a positive-definite quadratic variance penalty.

Modern portfolio theory constructs portfolios by comparing expected return with variance risk and the effects of diversification.

Modern Portfolio Theory (MPT) is an investment theory introduced by economist Harry Markowitz in the 1950s. It provides a framework for constructing a portfolio of assets that aims to maximize expected return for a given level of risk, or conversely, to minimize risk for a given level of expected return.