Diversification
The holding of assets whose returns are not perfectly correlated |
Similar financial terms
Principal of diversificationHighly diversified portfolios will have negligible unsystematic risk. In other words, unsystematic risks disappear in portfolios, and only systematic risks survive.
Naive diversification
A strategy whereby an investor simply invests in a number of different assets and hopes that the variance of the expected return on the portfolio is lowered.
Markowitz diversification
A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return.
Magic of diversification
The effective reduction of risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances).
Liquidity diversification
Investing in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor.
