Diversification: Difference between revisions
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imported>Doug Williamson (Add link.) |
imported>Doug Williamson (Reference hedging.) |
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Diversification is a form of risk reduction. | Diversification is a form of risk reduction and hedging. | ||
However, some residual risks cannot be eliminated by diversification. | However, some residual risks cannot be eliminated by diversification. | ||
Revision as of 00:07, 10 October 2021
Risk management.
Diversification is the process of spreading risk, to limit the possibility that an adverse event affecting a small number of investments could have an unacceptably detrimental effect on the overall portfolio.
Often summarised as 'Don't put all your eggs in the same basket'.
In corporate finance, the term is often used to mean the process of ensuring that an investment portfolio is constructed such that all possible specific risk (diversifiable risk) is eliminated.
Diversification is a form of risk reduction and hedging.
However, some residual risks cannot be eliminated by diversification.
