What is an Investment Portfolio?
An investment portfolio is a collection of securities that together provide an investor with an attractive trade-off between risk and return. Portfolio theory is a simple concept of making security choices based on expected portfolio, returns and risks.
Expected return is measured by the amount of profit anticipated over some relevant holding period. Risk is captured by return dispersion. Within this framework, investment alternatives are represented by the probability distribution of security returns over some future period.
Investors get positive benefit, or utility, out of an increase in the expected rate of return; and suffer a psychic loss, or disutility, from an increase in the amount of risk, or return volatility. This means that investors tend to be risk-averse.
An equal investment in two securities with the same expected return and standard deviation but a perfect inverse correlation would create a constant return or zero-risk portfolio.