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 ?
However, that type of risk would be diversifiable, and hence it should not be priced if the market was fully integrated.
where [[beta].sub.i] proxies the systematic/non diversifiable market risk of index i.
As seen, the diversifiable risk component [w.sub.i.sup.2] will become smaller as securities are added to tire portfolio.
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.
(3) That part of the risk of a stock that can be eliminated is called diversifiable risk, while that part that cannot be eliminated is termed market risk, or undiversifiable risk.
(5) This kind of risk is diversifiable because variance in asset returns tend to be reduced in a portfolio with an increasing number of different assets.
Understanding the meaning of diversifiable and nondiversifiable risks may encourage the use of asset allocation (see Chapter 6) and other portfolio techniques to minimize diversifiable risk in funds used for retirement income.
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.
Unsystematic (Specific, Diversifiable) Risk--It is risk that does not have wide spread impact, such as the impact an economic recession has on virtually all investment assets.

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