Basically modern portfolio theory boils down to attempting to find a portfolio with the maximum return for a given level of risk.  Individual investments are evaluated for the potential long term return and short term volatility (price fluctuation).  If you have two stocks whose prices generally move in the same direction, their short term volatility, or risk, will be greater than two stocks whose price fluctuations generally move in opposite directions.  The goal of modern portfolio theory is to take advantage of assets whose price movements differ, but offer the most opportunity for long term gain.  Thus, short term fluctuations and losses are less likely to occur.