Portfolio Theory and Risk Management

Prosperity Pulse Decoding Financial Frequencies · Mar 19, 2026 · 14m

Modern portfolio theory, developed by Harry Markowitz and others, provides a mathematical framework for understanding how diversification reduces risk and how investors should allocate capital across assets. This episode traces the evolution of portfolio theory, examining the concept of efficient frontiers (combinations of assets that maximize returns for given levels of risk). We analyze the role of correlation between assets in determining diversification benefits, examining how assets that move independently reduce portfolio volatility. The episode explores the Capital Asset Pricing Model…