Question

What are some of the diversification strategies that an investor can adopt to minimize the investment risk in the creation of a portfolio for optimal risk-return relationship if investing in the company Microsoft?

Answer 1

Diversification strategies that an investor can adopt to minimise investment risk for creation of optimal portfolio if investing in Microsoft, would be as follows-

A. The investor can be using the bonds of United States Treasury in order to diversify its risk because according to me Microsoft is a a high beta stock during such economic cycle when there is a high bullishness over technological stocks so Microsoft has also doubled in last few years so I would be trying to help myself with United States Treasury.

B. I would be trying to invest into other asset classes like pharmaceuticals and retailing industries because those sectors are considered to be highly defensive in nature.

C. I will be trying to switch my portfolio to low beta stocks when I will be having Microsoft in my portfolio in order to rebalance the overall beta positioning in order to avoid any kind of economic downturn.

D .I can even look for diversification of asset portfolio through having an exposure into derivatives by taking short positions on index and put option on index so I can save myself in case of a Black swan event if the portfolio crashes down.

E. I can also diversify through having an exposure into the commodities space like gold and silver so that I will be having a optimum risk diversification in order to maximise my return capabilities when I will be having Microsoft in my portfolio.