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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 MatchesLiquidity diversificationLiquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor. Unique Diversification BenefitUnique Diversification BenefitReduction in the likelihood of financial distress for a conglomerate firm that comes with its diversified investments. Sector diversificationSector diversificationConstituting of a portfolio of stocks of companies in each major industry group. Currency diversificationCurrency diversificationUsing more than one currency as an investing or financing strategy. Exposure to a diversified currency portfolio typically entails less exchange rate risk than if all the portfolio exposure were in a single foreign currency. DiversificationDiversificationInvestment 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'. Further SuggestionsCone of diversificationNaive diversification Indirect diversification benefits Principle of diversification Diversification International diversification Efficient diversification Diversification cone |
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