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Markowitz diversification |
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Markowitz diversificationA strategy that seeks to combine in a portfolio assets with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return. Related: Naive diversification.Markowitz diversification Similar MatchesDiversificationDiversificationInvestment jargon for not keeping all your eggs in one basket. Diversification implies that you distribute your capital among various assets to reduce loss if, through bad luck or judgement, one of them fails you.There are four main areas of risk to think about.Asset allocation: spreading your investments among different classes of asset (bonds, equities, property etc)Shares: spreading your stock investments over a sufficient number of shares (or invest in a diversified collective fund)Sectors: making sure the shares you invest in are in companies operating in a variety of sectorsCountries: getting some exposure to economies outside the UK as well as in the UKMost people agree that diversification is essential to reduce risk. There is an argument that to make exceptional returns, you have to concentrate your investments - the big winners theory. 'Put all your eggs in one basket and watch that basket very closely'. Sector diversificationSector diversificationConstituting of a portfolio of stocks of companies in each major industry group. Liquidity diversificationLiquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor. Efficient diversificationEfficient diversificationThe organizing principle of modern portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular level of portfolio risk. Diversification coneDiversification coneFor given prices in the Heckscher-Ohlin Model, a set of factor endowment combinations that are consistent with producing the same set of goods and having the same factor prices. Such a set has the form of a cone. Further SuggestionsIndirect diversification benefitsDiversification Principle of diversification Unique Diversification Benefit Cone of diversification International diversification Naive diversification Currency diversification |
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