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Naive diversification |
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Naive diversificationA strategy whereby an investor simply invests in a number of different assets in the hope that the variance of the expected return on the portfolio is lowered. In contrast, mathematical programming can be used to select the best possible investment weights. Related: Markowitz diversification.Naive diversification Similar MatchesDiversification 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. Cone of diversificationCone of diversificationSee diversification cone. Indirect diversification benefitsIndirect diversification benefitsDiversification benefits provided by the multinational corporation that are not available to investors through their portfolio investment. Unique Diversification BenefitUnique Diversification BenefitReduction in the likelihood of financial distress for a conglomerate firm that comes with its diversified investments. 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 SuggestionsSector diversificationMarkowitz diversification Currency diversification Principle of diversification Liquidity diversification Efficient diversification International diversification Diversification |
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