Principle of diversification

Principle of diversification

That portfolios of different sorts of assets differently correlated with one another will have negligible unsystematic risk. In other words, unsystematic risks disappear in diversified portfolios, and only systematic risks persist, those related to particular assets.

Principle of Diversification

A principle of investing stating that a portfolio containing many different assets and kinds of assets carries lower risk than a portfolio with only a few. The principle of diversification states that unsystemic risk may be alleviated through diversification, but systemic risk is more difficult to reduce. That is, the risk associated with a single investment or type of investment may be offset by the risk of another investment or type of investment. See also: Diversification.
References in periodicals archive ?
For example, the bank would be unlikely to put nearly $5 million into an investment without the board's approval, because that's too large a sum to place in any one investment, according to the principle of diversification, Levear said.
The affects of an economic recession and the recent Arab Spring which has led to political and social changes in the region, with the resulting fluctuating oil prices has led many in the region to realise the importance of enhancing the principle of diversification of wealth sources so as to meet the requirements of the GCC economic integration and growth.
The principle of diversification is still working to cushion a part of the decline, but not to the same degree that it did five or six or seven years ago," Scudder said.
In addition, they understand the principle of diversification as a means to reduce portfolio risk.
The principle of diversification is to spread your investments, and therefore your risk, by investing in several industries, such as financial, health care and technology.
Full browser ?