Market Portfolio

What is a 'Market Portfolio'

A market portfolio is 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).

BREAKING DOWN '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)
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RELATED FAQS
  1. How does market risk differ from specific risk?

    Learn about market risk, specific risk, hedging and diversification, and how the market risk of assets differs from the specific ... Read Answer >>
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  3. How can I calculate the expected return of my portfolio?

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