Terms

Diversification Theory

Diversification

  • Diversification involves investing in investments (or asset classes) that aren't tightly correlated
  • Returns of a diversified portfolio are usually great than those of a concentrated portfolio
  • Risks (volatility) of a diversified portfolio is usually less than those of a concentrated portfolio
  • A diversified portfolio tends to give a higher level of return for the same amount of risk as an undiversified portfolio