Market Portfolio

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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).

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 do I interpret a Security Market Line (SML) graph?

    The Capital Asset Pricing Model, or CAPM, shows the relationship between an asset's expected return and beta. The foundational ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  5. What types of assets lower portfolio variance?

    Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >>
  6. How can I determine if my portfolio is overweight in certain sectors?

    You can determine if your portfolio is overweight in certain sectors by performing a regular review of your portfolio allocations. ... Read Full Answer >>

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