 Hey guys, it's MJ the students actually and in this video I want to very quickly explain the mean variance portfolio theory and I want to give a very quick overview So we're not actually going to get into the mathematics. We're just going to get a very High-level understanding now the nice thing about finance is that the name kind of gives it away mean you can think of as return and variance you can think of as risk and portfolio theory think of two assets that we want to have a Portfolio these can be bonds which are assumed to be low risk low return and equity which is assumed to be high return high risk and The general idea was that you could have a combination of both of these assets So this would be a hundred percent equity This would be a hundred percent bonds and this yellow line indicates something in between and that the risk and return Relationship would follow this yellow line However, where the big breakthrough was was that this is actually not the case the mean variance portfolio theory says that the curve There's something actually like that it bends it bends and this is known as the efficient frontier and Why are we getting this Ben chill? That was the whole thing why they won the Nobel Prize and why everyone was like well This is such a cool theory because what they showed was that the variance of the portfolio Okay, so the variance of the portfolio Decreases Decreases worth a thing known as diversification so by introducing two different assets and important thing here is that they must be Uncorrelated Okay, the less correlated they are the more you're gonna get this bend So if the assets are very correlated you might just get a slight bend and this was the whole idea was that by adding in Assets that were uncorrelated you could reduce risk and Increase return and this went against the whole general understanding of in order to take get more return You needed to take on more risk and that's basically it So that is it very simply explained go check out a whole bunch of other videos on YouTube to get a more in-depth Understanding of the maths behind it, but I hope this clears it up very quickly for you guys. Thanks so much for watching. Cheers