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Diversification is related to risk and return because it involves spreading investments across different assets to reduce risk. By diversifying, investors can potentially lower the overall risk of their portfolio while still aiming for a competitive return. This strategy helps to minimize the impact of any single investment performing poorly, thus balancing the trade-off between risk and return.
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What is the diversification of Risk?
Diversification of risk means reduction of risk. Merely reducing risk (and thereby reducing return proportionately) doesn't amount to diversification. Diversification in its true sense represents systematic reduction of risk in such a manner that return per unit of risk increases. By K S JOLLY
How is the potential rate of return on investments related to the level of risk?
Higher risk investments have a higher potential return.
What is related diversification?
Related diversification occurs when a company expands its existing products or markets.
What type of risk is avoidable through proper diversification?
portfolio risk
What is the main purpose of diversification?
Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.
What is the diversification of Risk?
Diversification of risk means reduction of risk. Merely reducing risk (and thereby reducing return proportionately) doesn't amount to diversification. Diversification in its true sense represents systematic reduction of risk in such a manner that return per unit of risk increases. By K S JOLLY
What are the two key ideas of modern portfolio theory?
The two key ideas of modern portfolio theory are diversification and the trade-off between risk and return. Diversification involves spreading investments across different assets to reduce risk, while the risk-return trade-off suggests that investors should seek an optimal balance between risk and potential return based on their risk tolerance.
How is the potential rate of return on investments related to the level of risk?
Higher risk investments have a higher potential return.
What is related diversification?
Related diversification occurs when a company expands its existing products or markets.
What type of risk is avoidable through proper diversification?
portfolio risk
When is a company likely to choose related diversification and unrelated diversification?
Hell to the prof
What is the main purpose of diversification?
Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.
What is role of portfolio manager?
Deciding the Best Investment plan for an individual by considering income ,age and capability to take risk. Risk diversification Efficient portfolio Asset Allocation Beta Estimation Rebalncing Portfolio Portfolio Revision Risk and Return Analysis of a security.
What are the advantages of risk variation?
Risk variation can be examined by analyzing the negative correlation between risk and return. When you say risk variation I am assuming that you are referring to the diversification of risk, or otherwise stated, the accumulation of various instruments which involve different (varrying) risk. The main advantage to diversification is overall risk reduction through decreasing volatility of any particular risk. Example: If your unemployed and looking for a job you would apply to multiple places rather than just one because applying to many jobs (rather than just one) reduces the risk that you will continue to stay unemployed.
Diversification is an investment strategy to?
Diversification enables the investor to reduce risk by spreading investments among different companies and types of investing.
How does diversification affect financial institions credit risk exposure?
Generally, diversification helps reduce the overall credit risk exposure for financial institutions by reducing their overall expected chargeoff rates.
Effect of portfolio diversification on risk?
This is a common question I see that I have seen answered in many different ways. The simple answer is it does decrease risk, but the amount of decrease varies. It should also be noted that when risk is decreased, return is also decreased. This phenomenon brings the sharp ratio into effect, but I digress, let's get back to the question at hand. Diversification will lower the variance of your overall portfolio. This in essence is why your risk is reduced. The more investment vehicles you posses, the less likely all of them will crash at once.
