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Portfolio diversification

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Portfolio diversification

Category: Essay

Subcategory: Finance

Level: Masters

Pages: 6

Words: 1650

Portfolio diversification
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Portfolio Diversification
Portfolio investment is aimed at reaping maximum benefits. However, during this
process, the risk of making losses exists. This keeps financial experts and investors on their toes to minimize and manage risks in the guarantee of benefits. To manage risk, experts have resolved in the investment in an array of portfolios; portfolio diversification. The objective of Portfolio diversification is to have an overall positive result after the positives and negatives that arise from the different investments have been summed up. Hence, the underperformance of one investment is covered for by another investment that yields high returns. This paper seeks to discuss the dynamics of portfolio diversification.
Understanding Risk
Diversification involves in portfolios like stocks, equities, securities, and bonds. These investments have their unique technicalities, benefits, and challenges, which vary from time to time. Thus, if investors want to reap maximum benefits, they should have a deep understanding of them (Ross et al., 2010). As a result, they get to understand the magnitude and dimensions of risk that comes with investment portfolios. In investment, there is a correlation between risk and return. Often, if one opts for a low-risk investment, the yields are usually low and vice versa. In the same regard, it is worth noting that investments are affected by external forces like inflation and…

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