Answers » Categories » Banking

Distinguish between portfolio risk and portfolio diversification

1 Answer

Portfolio diversification is a method to lower the risk of an investor's portfolio. Each investor faces some kinds of risks. Risks may arise from the macro-level of the economy, these are called market risks. For example, a recession influences the entire stock market. Diversifying a portfolio can not reduce this kind of risk.

But there are security-specific risks, too. If a company does not perform well, their stock price will fall, even in case of a rising stock market. Diversification can mitigate this type of risk. Investors can make a decision on the size and number of investments they held in their portfolio. As the number of different types of assets increases, the risk of the portfolio decreases.

Answer this question

by Anonymous - Already have an account? Login now!
Your Name:  

Your Answer:  
Source(s): (optional)

Enter the text you see in the image below
What do you see?
Can't read the image? View a new one.
Your answer will appear after being approved.

Ask your own question