DEFINITION of 'Market Portfolio'
A theoretical bundle of investments that includes every type of asset available in the world financial market, with each asset weighted in proportion to its total presence in the market. The expected return of a market portfolio is identical to the expected return of the market as a whole. Because a market portfolio is completely diversified, it is subject only to systematic risk (risk that affects the market as a whole) and not to unsystematic risk (the risk inherent to a particular asset class).
INVESTOPEDIA EXPLAINS 'Market Portfolio'
Let's say the entire world financial market consists of three stocks: those of Company A, Company B and Company C.
- Company A's market capitalization is $1 billion
- Company B's market capitalization is $2 billion
- Company C's market capitalization is $3 billion
The total market portfolio would then consist of the following:
- 17% Company A stock ($1 billion / $6 billion)
- 33% Company B stock ($2 billion / $6 billion)
- 50% Company C stock ($3 billion / $6 billion)
Company or industry specific risk that is inherent in each investment. ...
The risk inherent to the entire market or entire market segment. ...
A grouping of investment assets that focuses on securities from ...
A portfolio construction theory devised by free-market investment ...
An investment strategy that aims to balance risk and reward by ...
The difference between the expected return on a market portfolio ...