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Efficient diversification |
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Definition of Efficient diversificationEfficient diversificationThe organizing principle of modern portfolio theory, which maintains that any riskaverse
Related Terms:Modern portfolio theoryPrinciples underlying the analysis and evaluation of rational portfolio choices Coefficient of determinationA measure of the goodness of fit of the relationship between the dependent and Correlation coefficientA standardized statistical measure of the dependence of two random variables, DiversificationDividing investment funds among a variety of securities with different risk, reward, and Efficient capital marketA market in which new information is very quickly reflected accurately in share Efficient frontierThe combinations of securities portfolios that maximize expected return for any level of Efficient Market HypothesisIn general the hypothesis states that all relevant information is fully and Efficient portfolioA portfolio that provides the greatest expected return for a given level of risk (i.e. standard Information Coefficient (IC)The correlation between predicted and actual stock returns, sometimes used to Internally efficient marketOperationally efficient market. International diversificationThe attempt to reduce risk by investing in the more than one nation. By Liquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long Magic of diversificationThe effective reduction of risk (variance) of a portfolio, achieved without reduction Markowitz diversificationA strategy that seeks to combine assets a portfolio with returns that are less than Markowitz efficient frontierThe graphical depiction of the Markowitz efficient set of portfolios Markowitz efficient portfolioAlso called a mean-variance efficient portfolio, a portfolio that has the highest Markowitz efficient set of portfoliosThe collection of all efficient portfolios, graphically referred to as the Mean-variance efficient portfolioRelated: Markowitz efficient portfolio Naive diversificationA strategy whereby an investor simply invests in a number of different assets and Operationally efficient marketAlso called an internally efficient market, one in which investors can obtain Principal of diversificationHighly diversified portfolios will have negligible unsystematic risk. In other Correlation CoefficientA measure of the tendency of two variables to change values DiversificationThe process of spreading a portfolio over many investments to Portfolio DiversificationSee diversification coefficient of correlationa measure of dispersion that indicates the degree of relative association existing between two variables coefficient of determinationa measure of dispersion that coefficient of variationa measure of risk used when the standard deviations for multiple projects are approximately input-output coefficienta number (prefaced as a multiplier Correlation coefficientA statistic in which the covariance is scaled to a Efficient frontierA graph representing a set of portfolios that maximizes diversificationStrategy designed to reduce risk by spreading the portfolio across many investments. efficient capital marketsFinancial markets in which security prices rapidly reflect all relevant information about asset values. DiversificationInvesting so that all your eggs are not in the same basket. By spreading your investments over different kinds of investments, you cushion your portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification. Beta coefficientA measurement of the extent to which the returns on a given stock move with stock market. Efficient Markets HypothesisThe hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security. diversificationAn investment technique intended to minimize risk by utilizing a wide variety of investments within a portfolio. In a diversified portfolio, a decline in the value of one investment, for example, should be offset by the strength of other investments. Market RiskThe part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
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