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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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
In this Part, we propose a new governance structure for public corporate bonds that is designed to replicate the lower agency costs of private debt while retaining the liquidity and easy diversifiability of public bonds.
At the same time, because the debt is publicly issued and traded, it will retain the benefits of liquidity, diversifiability, and availability of information.
Our new governance structure is designed to overcome the collective action problem and the bonding problem while retaining the greater liquidity and easy diversifiability that stern from the dispersion and fluidity in ownership of public bonds.

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