Risk Reduction by Diversification of Porfolio

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Over a long time horizon researchers have contradictory views about investment in portfolio, are “Put all your eggs in one basket” and “Don’t put all your eggs in one basket”. The latter one is supported by many and known as diversification [7]. Diversification is associated with reducing risk and maximizing returns of investors and portfolio managers i.e. risk-return trade off. An investor gets benefitted by spreading his scarce resources over various assets [2, 8] which maximizes return and minimizes risk.
Diversification is needed to minimize volatility i.e. measure of risk and maximize return. After the global financial crisis in US and Eurozone crisis, market is continuously enduring high volatility. Increased market volatility imposed much risk to investments which can be minimized by using diversification effects of other types of financial portfolio securities [9]. The phenomenon to be considered can be correlation between two securities.
The pioneer and elegant model given by H. Markowitz [2] and J. Tobin [3], analyzed in his research that risk reduction by diversification of portfolio closely depends upon correlation of mean returns of individual securities of portfolio. H. Markowitz also analyzed about portfolio diversification that if there is low correlation between two securities then there are more portfolio risk diversification benefits. While correlation between securities shows direct relation with portfolio diversification benefits but the argument

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