At a conceptual level, diversification is all about spreading risk and not putting all our eggs in one basket. Quantitatively, as I’ve previously explained, one of the main benefits of diversification is lowering the volatility for a given level of expected return. However, another way of looking at it is that diversification also allows us
Last year I addressed the concept of portfolio diversification and how we can assess it quantitatively through the use of return correlations. Just to recap: Correlation refers to the strength of the co-movement between two assets or portfolios (ranging from -1.0 or perfect negative correlation to +1.0 or perfect positive correlation) Diversification benefits – where
We all know the equity market has its ups and downs. Bullish runs are often interrupted by sharp corrections or extended bearish periods, even amid little change in fundamentals. With so much ‘noise’, how should investors be thinking about their equity investments? I studied the historical data to try to get some answers about longer
As investors, we’ve often heard about the ‘benefits of diversification’ for investment portfolios and frequently been told ‘not to put all our eggs into one basket’, but have we really thought about what these ideas mean? In this short post, I’ll try to shed some light on this.