Modern Portfolio Theory (MPT) is a financial concept that helps investors create a diversified investment portfolio to maximize returns while minimizing risk. It suggests that by combining different assets, such as stocks and bonds, investors can reduce the overall risk of their portfolio without sacrificing potential returns. The theory, developed by Harry Markowitz in the 1950s, emphasizes the importance of asset allocation and the relationship between risk and return. MPT uses statistical measures, like variance and correlation, to analyze how different investments interact, allowing investors to make informed decisions about their portfolios.