diversify

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Related to Diversifiable: Diversifiable risk, Non Diversifiable Risk

Diversification

In risk management, the act or strategy of adding more investments to one's portfolio to hedge against the investments already in it. Ideally, this reduces the risk inherent in any one investment, and increases the possibility of making a profit, or at least avoiding a loss. This may also reduce the expected return on a portfolio, but it depends on level and type of diversification. There are two main types of diversification. Horizontal diversification involves investing in similar investments. Examples include investing in several technology companies or in different types of bonds. Vertical diversification involves investing in very different securities; for example, one may choose to invest in securities traded in different countries, or in both winter clothing and swimsuit companies. Both types of diversification may be as broad or as narrow as the investor chooses. In general, broader diversification equates to less risk and less return. See also: Markowitz Portfolio Theory.

diversify

To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries.
References in periodicals archive ?
t]) is the price of a claim on aggregate diversifiable income.
As mentioned earlier, traditional pricing models such as Fama (1991) suggest information risk is idiosyncratic and should be diversifiable by investors and should thus not impact the cost of capital, debt, or equity.
Is long-term diversifiable quota of risk ([delta]LT) a driver for DIR?
In contrast, directors would be sensitive to diversifiable risk if they were not protected by the business judgment rule.
The other risk, diversifiable risk, is specific to an organization's assets.
Alternatively, insurers that focus entirely on the diversifiable "individual risk" end up concentrated in the industry's peak risk zones.
For such a model, individual security risk measured with a variance may be formulated as a sum of diversifiable (non-systematic, specific) and non-diversifiable (systematic, market) risk [Haugen, 1996, p.
If loss exposures are managed efficiently, the economic value of R supports a profile of risk from which all diversifiable risk has been removed by booking external hedges until the marginal benefit of further hedging transactions equals their marginal hedging cost.
The diversifiable risks tend to be those more closely related to specific companies or securities, such as management risk and default risk.
Unlike the one in Merton (1976), the jumps in our model are not diversifiable.

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