Harry Markowitz

Markowitz modeled a portfolio through expected return, variance, and the covariance among its assets. This showed mathematically that investors should evaluate how holdings move together rather than select each security in isolation.

The efficient frontier contains portfolios offering the highest expected return for each level of risk, or the lowest risk for each expected return. Portfolios below that frontier are inefficient because a better risk-return combination is available in the model.

Combining assets whose returns are not perfectly correlated can reduce portfolio-specific volatility. Broad market risk remains because many securities can still fall together during an economy-wide shock.

Markowitz shared the prize with Merton Miller and William Sharpe for foundational work in financial economics. His contribution was the formal theory of portfolio choice, while Sharpe developed major asset-pricing implications from that foundation.