Increasing variability – Risk Management Strategy, which combines different investments into a portfolio. A diversified portfolio combines several types of assets and investment products, which helps to reduce the risk exposure of an asset. This portfolio is considered more profitable in the long run.
Increased variability helps to reduce unsystematic risks in the backpack, for the reason that, that the positive performance of some instruments reduces the impact of the least profitable assets. The advantages of expanding the range are preserved only in this case., if the securities in the backpack are not correlated, in other words, they are different, often back, react to market fluctuations.
Analyses and mathematical models demonstrated, that the formation of a well-diversified backpack of 25-30 shares gives a more favorable level of risk reduction.
Fund managers and financiers often diversify their investments by asset class and each asset has its own share in the backpack.. Then, within each asset class, managers select stocks from different areas., often with a low correlation of efficiency, or choose stocks with different market capitalizations
Increased variability reduces the risk of backpack, but may also reduce efficiency, to the last extent, in the short term.
