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Portfolio Diversification |
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Definition of Portfolio DiversificationPortfolio DiversificationSee diversification
Related Terms:Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Complete portfolioThe entire portfolio, including risky and risk-free assets. Dedicating a portfolioRelated: cash flow matching. DiversificationDividing investment funds among a variety of securities with different risk, reward, and Efficient diversificationThe organizing principle of modern portfolio theory, which maintains that any riskaverse Efficient portfolioA portfolio that provides the greatest expected return for a given level of risk (i.e. standard Excess return on the market portfolioThe difference between the return on the market portfolio and the Factor portfolioA well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of Feasible portfolioA portfolio that an investor can construct given the assets available. Feasible set of portfoliosThe collection of all feasible portfolios. Hedged portfolioA portfolio consisting of the long position in the stock and the short position in the call International diversificationThe attempt to reduce risk by investing in the more than one nation. By Leveraged portfolioA portfolio that includes risky assets purchased with funds borrowed. Liquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long Leveraged portfolioA portfolio that includes risky assets purchased with funds borrowed. Magic of diversificationThe effective reduction of risk (variance) of a portfolio, achieved without reduction Market portfolioA portfolio consisting of all assets available to investors, with each asset held -in Markowitz diversificationA strategy that seeks to combine assets a portfolio with returns that are less than 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 Minimum-variance portfolioThe portfolio of risky assets with lowest variance. Modern portfolio theoryPrinciples underlying the analysis and evaluation of rational portfolio choices Naive diversificationA strategy whereby an investor simply invests in a number of different assets and Normal portfolioA customized benchmark that includes all the securities from which a manager normally Optimal portfolioAn efficient portfolio most preferred by an investor because its risk/reward characteristics Passive portfolio strategyA strategy that involves minimal expectational input, and instead relies on Passive portfolioA market index portfolio. PortfolioA collection of investments, real and/or financial. Portfolio insuranceA strategy using a leveraged portfolio in the underlying stock to create a synthetic put Portfolio internal rate of returnThe rate of return computed by first determining the cash flows for all the Portfolio opportunity setThe expected return/standard deviation pairs of all portfolios that can be Portfolio managementRelated: Investment management Portfolio managerRelated: Investment manager Portfolio separation theoremAn investor's choice of a risky investment portfolio is separate from his Portfolio turnover rateFor an investment company, an annualized rate found by dividing the lesser of Portfolio varianceWeighted sum of the covariance and variances of the assets in a portfolio. Principal of diversificationHighly diversified portfolios will have negligible unsystematic risk. In other Replicating portfolioA portfolio constructed to match an index or benchmark. Structured portfolio strategyA strategy in which a portfolio is designed to achieve the performance of some Tilted portfolioAn indexing strategy that is linked to active management through the emphasis of a Weighted average portfolio yieldThe weighted average of the yield of all the bonds in a portfolio. Well diversified portfolioA portfolio spread out over many securities in such a way that the weight in any Zero-beta portfolioA portfolio constructed to represent the risk-free asset, that is, having a beta of zero. Zero-investment portfolioA portfolio of zero net value established by buying and shorting component DiversificationThe process of spreading a portfolio over many investments to PortfolioA collection of securities and investments held by an investor Portfolio WeightThe percentage of a total portfolio represented by a single specific diversificationStrategy designed to reduce risk by spreading the portfolio across many investments. market portfolioportfolio of all assets in the economy. In practice a broad stock market index, such as the Standard & Poor's Composite, is used to represent the market. 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. Market PortfolioThe total of all investment opportunities available to the investor. 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. Index Portfolio Rebalancing Service (IPRS)Index portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of Index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually. Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Systematic riskAlso called undiversifiable risk or market risk, the minimum level of risk that can be Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Market RiskThe amount of total risk that cannot be eliminated by portfolio Systematic RiskThe amount of total risk that cannot be eliminated by portfolio Unsystematic RiskThe amount of total risk that can be eliminated by diversification by mutual fundWhen you buy a mutual fund, you are pooling your money with that of other investors. An investment professional called a portfolio advisor takes that money and invests it for all the investors in a variety of different securities as determined by the investment objectives of the mutual fund. This gives you the benefit of diversification that is, being invested in many different investments at once.
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