Diversification Benefit
Definition
What is Diversification Benefit?
The reduction in overall portfolioThe complete collection of investments owned by an investor or managed under one mandate. risk achieved by combining assets that do not move identically.
Example in practice
How This Looks in Practice
Adding bonds reduces volatilityThe degree and frequency of price or return fluctuations. when bonds and shares respond differently to shocks.
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Related Terms
Portfolio
The complete collection of investments owned by an investor or managed under one mandate.
Portfolio ConstructionPortfolio Construction
The process of selecting and combining investments to meet return, risk, liquidity, and time-horizon objectives.
Portfolio ConstructionStrategic Asset Allocation
A long-term target mix of asset classes based on an investor's objectives and constraints.
Portfolio AnalyticsCorrelation
A statistic ranging from minus one to plus one that describes how two return series move together.