Part A. Portfolio theory1. Brief Introduction of Portfolio TheoryIn 1952, Markowitz proposed portfolio theory. This theory has already proven effective in practice in developed securities markets and is also widely used in portfolio selection and asset allocation, which was described by Markowitz (1991): "my work on Portfolio theory considers the behavior of an optimizing investor. » In simple terms, a portfolio means using a variety of financial products: stocks, bonds, funds and others consists of an investment portfolio. The basic idea of ​​this theory is that portfolio risk is associated with the relationship between portfolio asset returns, under defined conditions; there is a group that minimizes the proportion of investment portfolio risk - portfolio risk increases with increasing number of portfolio assets, but it will not increase infinitely, there is an optimal risk point. Risk-averse Bill Gate wants to achieve exactly the optimal investment portfolio. Therefore, understanding portfolio theory is really helpful for Bill Gate to invest his wealth legitimately.2. Underlying Information According to traditional portfolio theory, “no egg will survive strong,” meaning that the greater the number of assets in the portfolio, the greater the risk diversification (Mary, 2005). By the way, the risk mentioned here is the unsystematic risk specific to a given stock, whereas there is non-diversification risk, also called systematic risk, which refers to the possibility of certain factors leading to financial loss. all market headlines, such as inflation, monetary policy and war. Moreover, the deeper meaning of diversification is to reduce fluctuations in ...... middle of article ......mas ECJFred W., Kuldeep S. (2005). Financial theory and business policy (4th). London: Pearson Addison Wesley. Steve Lydenberg. (2009). Risky markets: the limits of modern portfolio theory. Domini Social Investments. No.6, pp. 42-50.United States. (2001). Investing in Bond Funds: How Bond Funds Can Fit into Your Investment Portfolio. Malvern Pennsylvania: The Vanguard Group. Yahoo Finance. (2013).FTSE ALL-Share Index. Available at http://uk.finance.yahoo.com/q/hp?s=%5EFTAS&b=14&a=09&c=2008&e=14&d=09&f=2013&g=w [Accessed November 24, 2013] Yahoo Finance. INTL. CONS. AIR GRP (IAG.L). Available at http://uk.finance.yahoo.com/q/hp?s=IAG.L&b=14&a=09&c=2008&e=14&d=09&f=2013&g=w [Accessed November 24, 2013] Yahoo Finance. (2013). Marks & Spencer Group PLC (MKS.L). Available at http://uk.finance.yahoo.com/q/hp?s=MKS.L&b=14&a=09&c=2008&e=14&d=09&f=2013&g=w [Accessed 24 November 2013]