OBJECTIVES: In recent years, a number of health economists have introduced the potential of using portfolio theory as a basis for resource allocation in health. Portfolio theory is concerned with the optimal investment strategy, based on both return and risk, and demonstrates the potential benefits from pooling different investments into a single portfolio. Furthermore, portfolio theory can be modified to allow for synergies between interventions. Given that in public health we often need to implement multiple health care interventions with a single, fixed health budget, portfolio theory is of benefit both theoretically, and practically. METHODS: Using both theoretical and simulation modelling this paper demonstrates the importance of using a modified portfolio theory framework when evaluating a number of health interventions from the perspective of a representative individual. This is done by varying the level of correlation and synergy between two programs and focusing on stylised portfolio consisting of equal resource shares of each of the programs. RESULTS: The paper demonstrates the importance of taking a portfolio approach in considering the resource allocations made in the presence of risk. Risk can be reduced by combining programs, given that they are not perfectly correlated. If one allows for non-linearities through the inclusion of synergies, then portfolio theory is important for those who are even risk neutral. CONCLUSIONS: While portfolio analysis in health care is theoretically appealing, there are a number of pragmatic reasons for using it. Portfolio theory emphasizes the trade-offs required by a fixed budget and the importance of taking a global perspective, rather than piecemeal one, in the evaluation of health care interventions. A number of limitations in the portfolio approach exist, but many of these concerns are found in all forms of economic evaluation in health care.