Question
In: Finance
Formulate an argument for investment diversification in an investor portfolio.
Formulate an argument for investment diversification in an investor portfolio.
Solutions
Expert Solution
Diversification of investment into various asset is always advantages for portfolio management because there are various kinds of systematic as well as unsystematic risk which are associated with investment into portfolio, so when a diversification into various asset classes are done, unsystematic risk or firm specific risk are completely eliminated. Hence, diversification into various securities can help into minimising the overall firm specific risks and magnifying the overall return of the portfolio.
Systematic risks associated with an investment cannot be completely eliminated as there is always a risk for being invested into the market. Hence, since the systematic risks are not completely eliminated, diversification of the portfolio would still provide a better management in minimising the risks which are systematic in nature.
it can be advocated that diversification of portfolio is advantages because it will lead to minimization of risk and maximization of returns and it can protect against adverse economic scenarios.
jeff jeffy answered 1 year agoRelated Solutions
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a) Discuss the benefit of portfolio diversification. Explain how
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a) Discuss the benefit of portfolio diversification. Explain how to achieve diversification benefit. An investor buys...
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An investor buys 1 share of ABC Ltd at the price of $32 on
December 1, 2019. The firm is not expected to pay any dividends.
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on December 1, 2020:
$50 with a probability of 20%
$35 with a probability of 65%
$23 with a probability of 15%
b) Calculate the expected return for holding the share...
Efficient diversification was discussed in Chapter 6. Diversification in an investment portfolio is a significant concept...
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Diversification in an investment portfolio is a significant concept
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create this diversification portfolio managers consider the
correlation of investments. Thoroughly explain how correlation is
interpreted and how it can help with the creation of a diversified
portfolio.
Diversification in an investment portfolio is a significant concept for creating the highest return for the...
Diversification in an investment portfolio is a significant
concept for creating the highest return for the least amount of
risk. To create this diversification portfolio managers consider
the correlation of investments. Based on your reading, thoroughly
explain how correlation is interpreted and how it can help with the
creation of a diversified portfolio.
What are some of the diversification strategies that an investor can adopt to minimize the investment...
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?
By combining stocks with ______________ in a portfolio, an investor would get big diversification benefits. 1)Negative...
By combining stocks with ______________ in a portfolio,
an investor would get big diversification benefits.
1)Negative covariance of stock returns
2)High standard deviation of returns
3)Positive correlation coefficients of stock returns
4)High beta coefficients
Which of the following is true?
S1: The stand-alone risk of a stock can completely be
diversified away.
S2: According to the Capital Asset Pricing Model (CAPM), the
market risk of a stock is relevant.
1) S1
2) S2
3) Both
4) Neither
discuss the role of diversification in making investment decisions with reference to portfolio theory.
discuss the role of diversification in making investment
decisions with reference to portfolio theory.
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Investment diversification is a principle that investors follow. Is
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Provides an honest assessment of your role as an investor in the simulated investment portfolio.
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simulated investment portfolio.
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