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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.


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 ?
The relationship shared by diversification and firm performance has been the subject of significant investigation in the finance literature over the last 20 years.
For instance, Villalonga (2004) finds that the diversification discount reported in previous studies is an artifact of segment-level data reported by Compustat.
"Certainly, before commodity prices rose a bit last year, there was a feeling that virtually every farm needed some sort of diversification," Brown said, before pointing out that the benefits for producers are being offset by an increase in energy and other costs.
Collingwood Cameron, whose family owns a farm near Glanton in Northumberland, believes the speed of diversification has reduced in the past year because of confusion surrounding funding schemes and the slowness of the planning system.
The recent interest in the value effects of diversification was initiated by Lang and Stulz (1994) and Berger and Ofek (1995), who report that the shares of the typical diversified firm sell at a discount relative to those of focused firms.
Furthermore, we find that the excess value measures are positively related to the degree of diversification (number of lines of business).
They found that both product and geographical export diversification is very important for resilience to crises.
In view of the above, the main objective of this paper is to analyze the role of export diversification in economic growth, both in terms of product and markets diversification, or in other words the study focuses on commodities export diversification and geographical export diversification, which is the main contribution of this paper.
Khanna and Palepu (2000a) and Chang and Choi (1988) among others observe that group diversification enhances firm performance in the countries with weak institutional environment.
A number of researchers for instance Lee, Peng and Lee (2008) and Khanna and Palepu (2000b) report a declining trend in performance impacts of group diversification in South Korea and Chile.
Miles and McCue (1982) tested diversification strategies in United States of America by dividing the country into four geographic regions and comparing this with a strategy that diversified the portfolio by property types.
The above, no doubt, is a pointer to the fact that there are many empirical studies justifying whether diversification by property types or by geographic or economic location is worth pursuing.

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