Efficient Diversification Strategies: Mitigating Unsystematic Risk with DS-30 Stocks

Shahed Ahmmed () and Shohana Siddique ()
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Shahed Ahmmed: University of Dhaka
Shohana Siddique: University of Dhaka

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Abstract: DS30 index consists of 30 high-qualities, blue chip companies' stocks, and it is the most reputed index in the stock market in Bangladesh. This paper tests whether stocks of this index can be used for risk diversification. The objective is to find out how many DS-30 stocks can eliminate 85% of Unsystematic Risk without compromising return. The analysis is based on 5-years of monthly data collected from Dhaka Stock Exchange. In this study, DS-30 stocks are selected and added to an equal weight portfolio, one by one in the descending order of their average monthly return, unless the resulting portfolio is able to eliminate 85% of Unsystematic Risk. This order of selection ensures that, return is not compromised at a cost of diversification. Results show that, it takes only ten DS-30 stocks to accomplish the objective.

Keywords: Diversification; Unsystematic Risk; Systematic Risk; Portfolio Risk Calculation; DS30; Dhaka Stock Exchange; Stock Market; Bangladesh (search for similar items in EconPapers)
Date: 2022-12-31
New Economics Papers: this item is included in nep-rmg
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Published in Journal of Fareast International University, 2022, 5 (1), pp.1-10

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