- Diversification reduces risk by combining assets whose returns are not perfectly positively correlated, thereby lowering portfolio risk without reducing expected returns. Markowitz diversification is more analytical than simple diversification by considering assets' correlations. - Portfolio analysis involves calculating a portfolio's expected return and risk. The expected return is a weighted average of assets' individual expected returns, while risk is measured by portfolio standard deviation rather than a simple weighted average of individual risks. Correlations between assets are important for determining portfolio risk. - The efficient frontier shows the set of optimal portfolios that offer the maximum expected return for a given level of risk. Individual investors will select different portfolios on the efficient frontier depending on their unique risk tolerances and utility