Modern Portfolio Theory (MPT) is a method that risk-averse investors can use to create diversified portfolios that maximize their returns without an unacceptable level of risk.
Modern portfolio theory can be useful for investors trying to build efficient and diversified portfolios using ETFs.
Investors who are more concerned about the risk of loss may prefer Postmodern Portfolio Theory (PMPT) to MPT.
Arbitrage Pricing Theory (APT) is a multi-factor asset pricing model based on the idea that an asset’s return can be predicted using a linear relationship between an asset’s expected return and a set of macroeconomic variables that account for systematic risk.
Beta (β), primarily used in the Capital Asset Pricing Model (CAPM), is a measure of the volatility or systematic risk of a security or portfolio compared to the market as a whole.
The Fama French three-factor model is an asset pricing model that extends the capital asset pricing model by adding size and value risk factors to market risk factors.
The Sortino ratio differs from the Sharpe ratio in that it takes into account only the standard deviation of the downside risk, and not the total (up + down) risk.
Leveraged beta (commonly referred to as simply beta or equity beta) is a measure of market risk. Debt and equity are taken into account when assessing a company’s risk profile.