Diversification (finance)

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Adapted from Wikipedia under CC BY-SA 4.0. Contributor history · Source revision 1379995543. This deck is adapted and shared under the same license.

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Diversification (finance) Swipe →In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk.A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.Conversely, the diversified portfolio's return will always be higher than that of the worst-performing investment.Thus, in an equally weighted portfolio, the portfolio variance tends to the average of covariances between securities as the number of securities becomes arbitrarily large.If one buys all the stocks in the S&P 500 one is obviously exposed only to movements in that index.Governments often impose legal requirements that some types of investment funds (mutual funds, ETFs, UCITS, etc.) must maintain some level of diversification.Found this useful? Follow for more, and save this post.
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  1. Diversification (finance)

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  2. In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk.

  3. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.

  4. Conversely, the diversified portfolio's return will always be higher than that of the worst-performing investment.

  5. Thus, in an equally weighted portfolio, the portfolio variance tends to the average of covariances between securities as the number of securities becomes arbitrarily large.

  6. If one buys all the stocks in the S&P 500 one is obviously exposed only to movements in that index.

  7. Governments often impose legal requirements that some types of investment funds (mutual funds, ETFs, UCITS, etc.) must maintain some level of diversification.

  8. Found this useful?

    Follow for more, and save this post.

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