Unlike traditional asset management, which focuses on predicting individual stock price movements using fundamental or technical analysis, his system looks at the performance of a portfolio of assets based on the combination of its components' risk and return. His hypothesis and subsequent work were so revolutionary that Markowitz was a joint Nobel Laureate for economics in 1990. The system Markowitz developed, however, had to wait until the late 1970s to be put to practical use. The task of applying modern portfolio theory was made possible only with the advent of computers that could handle the vast number of calculations and range of historical data needed by the model. Thus, portfolio management today melds theory and technology to optimize portfolio performance.
Diversification helps spread risk between countries, currencies and markets.
It enables us to benefit from opportunities as they arise around the world. Diversification reduces risk. Modern portfolio analysis has shown that even a random mix of investments is less risky than putting all your money in a single stock. The technical underpinnings of MPT are complex, drawn from financial economics and probability and statistical theory. A portfolio that contains both assets will always pay - rain or shine.