AS part of my MBA course I came across the portfolio theory where the basic concept was never put all eggs in one basket.A portfolio is simply a collection of assets or investment the individual has. Since every one loves high return but tries to avoid more risks, however either theoretically or practical there is more premium or returns for higher risks. TO spread the risk, investors invests their money in numbers of project or stocks so that risks are co insured by each others and total returns of portfolio as a whole are more certain.
so, for efficient portfolio, investors invest some money in high risks and some in lower risk. Due to the fact that the whole world is interrelated these stock may be co-related (click here http://www.youtube.com/watch?v=Ypgo4qUBt5o ) i.e, they may move in same direction in boom or recession or may completely act in opposite direction. In practical world its hard to find stock with perfectly negatively co-related. it is one of factors that needs to be considered while investing in a stock how are they co-related.
Another aspect of portfolio is Sharpe ratio which indicates the investors about the efficiency of stock. Sharpe ratio tells us how much extra return over risk free rate are given by stock for each unit of investment.
