What’s the point of portfolio diversification?

[TheDawn]

What’s the point of portfolio diversification?

-To use the negative and/or zero coefficient of correlation between different securities to reduce the overall risk of the portfolio in light of a particular event

What it cannot diversify away is the beta risk which impacts all securities in the portfolio aka market risk

Most of the volatility experienced in a well-diversified portfolio is the beta.

 

[taowave]

Diversification is the lazy mans approach to money management.....

 

[TheDawn]

Diversification is the lazy mans approach to money management.....

Not if they are done properly. You are a fund manager, you should know.

 

[taowave]

If you shoot for above average returns,tough to do it with diversification..
Im not including derivatives,vol etc

 

[deaddog]

Not if they are done properly. You are a fund manager, you should know.

So what is proper diversification?

 

[taowave]

I probably mispoke and should have clarified..

Trend following across different asset classes may be a different story,but I believe Money Management is still an essential ingredient...

So what is proper diversification?

 

[TheDawn]

So what is proper diversification?

With proper coefficient of correlation between different securities, to ensure that not all securities are affected the same way or to the same degree. The exact mechanism to achieve that is very complicated, for me anyway so don't ask me. LOL

If you are interested to know more, here is an article that talk more about the process: https://www.investopedia.com/ask/an...ated,a statistical measure of diversification.

 

[Fiotrader]

Portfolio diversification is done so that you may not end up losing everything.

 

[deaddog]

Portfolio diversification is done so that you may not end up losing everything.

But you still lose.

 

[Fiotrader]

But you still lose.

hahah, but chances are less to loose in case of portfolio diversification.