Portfolio Diversification

Bill Jiang ()
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Bill Jiang: Legal & General Investment Management

Chapter Chapter 6 in Investment Strategies, 2022, pp 67-77 from Springer

Abstract: Abstract Diversification is a fundamental investment principle and effective approach to reducing risk. It controls exposure to single assets to protect portfolios against extreme losses. This simple approach allows portfolios to capture diverse sources of return and improve resilience to market volatility. This chapter seeks to clearly explain the principle of diversification in reducing portfolio risk. It discusses the decomposition of total risk and the concept of efficient frontier. The chapter presents a measure to objectively evaluate the level of portfolio concentration. It demonstrates the key benefits of diversification in investing, such as downside protection and upside capture.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-82711-3_6

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DOI: 10.1007/978-3-030-82711-3_6

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