What is Portfolio Diversification?
9 Pages Posted: 27 Sep 2013 Last revised: 14 Feb 2014
Date Written: January 30, 2014
There is considerable controversy concerning what exactly portfolio diversification is and under what circumstances is it beneficial to investors, particularly in the wake of the most recent financial crisis in 2008. This paper gathers the various approaches on portfolio diversification throughout history, placing a higher emphasis on recent developments. The goal of this paper is not to provide an exhaustive list of diversification strategies, but rather to highlight the most commonly used ones, provide the motivation behind each approach, and show how they compare with real data.
Keywords: portfolio diversification, risk parity, entropy
JEL Classification: C14, C15, C61
Suggested Citation: Suggested Citation