Diversified

The expected return on a portfolio is a weighted average of the expected returns on each individual asset:. The portfolio variance then becomes:. 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. The capital asset pricing model introduced the concepts of diversifiable and non-diversifiable risk. Synonyms for diversifiable risk are idiosyncratic risk, unsystematic risk, and security-specific risk. Synonyms for non-diversifiable risk are systematic risk , beta risk and market risk.

The second risk is called "diversifiable", because it can be reduced by diversifying among stocks. In the presence of per-asset investment fees, there is also the possibility of overdiversifying to the point that the portfolio's performance will suffer because the fees outweigh the gains from diversification. The capital asset pricing model argues that investors should only be compensated for non-diversifiable risk. Other financial models allow for multiple sources of non-diversifiable risk, but also insist that diversifiable risk should not carry any extra expected return.

Still other models do not accept this contention. In Edwin Elton and Martin Gruber [14] worked out an empirical example of the gains from diversification. Their approach was to consider a population of 3, securities available for possible inclusion in a portfolio, and to consider the average risk over all possible randomly chosen n -asset portfolios with equal amounts held in each included asset, for various values of n.

Their results are summarized in the following table. In corporate portfolio models, diversification is thought of as being vertical or horizontal. Horizontal diversification is thought of as expanding a product line or acquiring related companies. Vertical diversification is synonymous with integrating the supply chain or amalgamating distributions channels.

Non-incremental diversification is a strategy followed by conglomerates, where the individual business lines have little to do with one another, yet the company is attaining diversification from exogenous risk factors to stabilize and provide opportunity for active management of diverse resources. Diversification is mentioned in the Bible , in the book of Ecclesiastes which was written in approximately B. Diversification is also mentioned in the Talmud. The formula given there is to split one's assets into thirds: Diversification is mentioned in Shakespeare Merchant of Venice: The modern understanding of diversification dates back to the work of Harry Markowitz in the s.

• Jiving Sister Fanny!
• Diversified Waterscapes?
• Sexual Strategy (Black Lace).
• diversified?
• Strategien von Autobanken (German Edition).
• The Home Health Aide Textbook.

From Wikipedia, the free encyclopedia. This article may be unbalanced towards certain viewpoints. Please improve the article by adding information on neglected viewpoints, or discuss the issue on the talk page.

Excellence in Benefit Management Solutions

Government spending Final consumption expenditure Operations Redistribution. Central bank Deposit account Fractional-reserve banking Loan Money supply.

Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals. Upper Saddle River, New Jersey: Archived from the original PDF on An Introduction to Investment Theory. Retrieved on November 20, Theories and Evidence 2nd ed. Retrieved on June 21, A fallacy of large numbers" , Scientia 98, , Samuelson's fallacy of large numbers revisited" Journal of Financial and Quantitative Analysis 34, September , The Theory of Finance.

Gruber, "Risk Reduction and Portfolio Size: Tyndale House Publishers, Inc. Financial risk and financial risk management. Concentration risk Consumer credit risk Credit derivative Securitization. Operational risk management Legal risk Political risk Reputational risk Valuation risk. Profit risk Settlement risk Systemic risk.

Financial economics Investment management Mathematical finance. One only needs to think about the Enron employees who placed all of their k savings in Enron stock to understand why failing to diversify is like betting the ranch on one roll of the dice. See the full definition for diversify in the English Language Learners Dictionary. Translation of diversify for Spanish Speakers. Translation of diversify for Arabic Speakers. What made you want to look up diversify?

Diversification (finance)

Please tell us where you read or heard it including the quote, if possible. Test Your Knowledge - and learn some interesting things along the way. Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free! What origins we bring to you and your kin.

Diversified - definition of diversified by The Free Dictionary

A word with surprisingly literal origins. Do you feel lucky? How we chose 'justice'. And is one way more correct than the others? How to use a word that literally drives some people nuts. The awkward case of 'his or her'. Identify the word pairs with a common ancestor. Test your knowledge - and maybe learn something along the way. Examples of diversify in a Sentence The country is diversifying its energy sources. The company needs to diversify.

Many publishing companies have diversified into online services. Recent Examples on the Web However, the bulk of these services continue to be provided by White, European American therapists despite efforts to diversify the mental health workforce. First Known Use of diversify 15th century, in the meaning defined at transitive sense 1.

• Sexual Behaviour and Nudity in Dreams.
• Roving Piper.
• The Keeping Place: Obernewtyn Chronicles: Book Four!

History and Etymology for diversify see diverse. Learn More about diversify. Resources for diversify Time Traveler!

Sign up, it's free!

Explore the year a word first appeared. Dictionary Entries near diversify diverse diversi- diversiform diversify diversion diversional diversionary. Time Traveler for diversify The first known use of diversify was in the 15th century See more words from the same century. Financial Definition of diversification.

What It Is Diversification is a method of portfolio management whereby an investor reduces the volatility and thus risk of his or her portfolio by holding a variety of different investments that have low correlations with each other. How It Works The basic idea behind diversification is that the good performance of some investments balances or outweighs the negative performance of other investments.