Modern Portfolio Theory Adaptations ( Pmpt )

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Modern Portfolio Theory Adaptations
MPT correlates the distribution of assets to the risk of investments. This theory also acknowledges an investors aversion to risk and required return rates (Geambasu, Sova, Jianu, & Geambasu, 2013). Moreover, MPT emphasizes the importance of diversifying as much as possible to eliminate risk. In order to measure the risk of an investment MPT relies on the standard deviation of all returns (Chambers, 2010). However, due to new analysis suggesting that MPT produces inefficient portfolios, financial experts have adapted the theory, creating the Post Modern Portfolio Theory (PMPT). The PMPT improves upon MPT by refining the risk calculations and using the standard deviation solely on negative returns. As such, PMPT acknowledging an investor’s expectation and recognizes that the standard deviation measurement in MPT poorly measures how humans experience and asses risk (Swisher & Kasten, 2005). Therefore, the standard deviation is an important analysis used in divarication financial theory’s to asses and ultimately avoid risk.
Standard deviation. The standard deviation is one of the most common calculations to measure an investments risk because it produces the actual amount an investment’s return will deviate from its average (Chambers, 2010). When combined with either the MPT or PMPT the standard deviations assists in finding the optimum portfolio that yields the least amount of risk in combination with the best expected returns

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