Modern Portfolio Theory allows investors to estimate both the expected risk and returns, as measured statistically, for their investment portfolios. A portfolio's risk can be reduced and the expected rate of return increased, when assets with dissimilar price movements are combined. Diversification reduces risk only when assets are combined whose prices move inversely, or at different times, in relation to each other.
While the technical underpinnings of the Modern Portfolio Theory are complex, its conclusion is simple and easy to understand: A diversified portfolio, of uncorrelated asset classes, can provide the highest return with the least amount of volatility.
One of the most uncorrelated and independent investments as compared with stocks and bonds is professionally managed futures.
"Portfolios...including judicious investments...in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks alone"
Dr. John Lintner, Harvard University
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