Portfolio Theory: How Diversification Reduces Risk Through Math

Описание: Why does combining assets into a portfolio produce better risk-adjusted returns than any single stock? This video walks through the mean-variance framework — the foundational tool of modern portfolio management — and shows exactly why diversification works, not as a vague principle, but as a mathematical certainty driven by correlation.

Using real historical data from assets like Motorola, Merck, McDonald's, GM, and the S&P 500, we build the risk-return map, define dominance versus tradeoff, and reveal how the efficient frontier curves northwest into territory no individual asset can reach alone.

Key concepts covered:
• The mean-variance framework: evaluating investments on expected return and standard deviation
• The risk-return scatter plot: mapping real assets on two dimensions
• Dominance vs. tradeoff: when one asset clearly beats another vs. when risk tolerance decides
• The efficient frontier: why portfolios curve northwest beyond individual assets
• Correlation as the engine of diversification — not the number of holdings
• Idiosyncratic risk vs. systematic risk in sector-focused portfolios
• Why portfolio contribution matters more than standalone merit
• Historical data limitations: process over prediction

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ORIGINAL SOURCE
This video distills concepts from a longer lecture.
Source video:    • Ses 13: Risk and Return II & Portfolio The...  
Full credit to the original author and lecture series.

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About Ludium
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