Markowitz diversification

Markowitz diversification

A strategy that seeks to combine in a portfolio assets with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return. Related: Naive diversification.

Markowitz Diversification

Diversification of a portfolio with appropriate regard for the mathematical formulas in Markowitz portfolio theory. That is, Markowitz diversification occurs when one uses mathematical models to find the securities to place in a portfolio such that the portfolio has the highest possible return for its level of risk. One may engage in Markowitz diversification when one wishes to increase or decrease one's portfolio's risk, or when the portfolio was previously not diversified. See also: Markowitz portfolio theory.
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Finally, in order to avoid the complete domination of only one asset in our portfolio and to achieve Markowitz diversification, no asset was allowed to have a weight higher than 10% in the final portfolio, that is [w.sub.t] [less than or equal to] 10.