Portfolio Construction

Diversification Benefit

Definition

What is Diversification Benefit?

The reduction in overall portfolio risk achieved by combining assets that do not move identically.

Example in practice

Adding bonds reduces volatility when bonds and shares respond differently to shocks.

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The complete collection of investments owned by an investor or managed under one mandate.

The process of selecting and combining investments to meet return, risk, liquidity, and time-horizon objectives.

A long-term target mix of asset classes based on an investor's objectives and constraints.

A statistic ranging from minus one to plus one that describes how two return series move together.

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