SkiptomaincontentBoundlessFinanceIntroductiontoRiskandReturnSearchfor:DiversificationImpactofDiversificationonRiskandReturn:UnsystematicRiskIngeneral,diversificationcanreduceriskwithoutnegativelyimpactingexpectedreturn.LearningObjectivesDescribeunsystemicriskKeyTakeawaysKeyPointsDiversificationisnotputtingallyoureggsinonebasket.Diversificationreliesonthelackofatightpositiverelationshipamongtheassets‘returns,andworksevenwhencorrelationsarenearzeroorsomewhatpositive.Thedebateoveractivevspassivemanagementisonethattakesonthelimitstodiversification.KeyTermsUnsystematicrisk:Unsystematicordiversifiableriskisatermgiventotheportionofriskinaportfoliothatcanbediversifiedawaybyholdingapoolofindividualassets.Didyourgrandmothereverwarnyounottoputallyoureggsinonebasket?Didyouknowwhatshewastalkingabout?Theimplicationisobvious.Ifyouputallyoureggsinonebasket,andthatbasketbreaks,youarestuckwithnothingtofryupintoanomelet.Grandmawasn’ttellingyoutogrowupandbeanomeletchef,shewasactuallygivingyousomesageadvicethatappliestoyourfutureasaportfoliomanager.Wehavetalkedaboutdiversificationpreviously,andthissectionwillfollowfromthat.Remember,wetalkedabouteveryparticularinvestmenthavinganexpectedreturnandavariance.Ifyouaremanagingapoolofassets,youwanttogetpositivereturnswithoutbeingindangerof“losingyourshirt.”Theprobabilitythatonestockgoesbellyupismuchhigherthanthatthewholestockmarketdoes.Infinance,systematicriskisthetermassociatedwithriskthatcanbediversifiedawaybyinvestinginabroaderpoolofassets.Diversificationreliesonthelackofatightpositiverelationshipamongtheassets’returns,andworksevenwhencorrelationsarenearzeroorsomewhatpositive.Ontheflip-side,hedgingisthetacticthatreliesonnegativecorrelationsamongassets.Diversificationcomeswithacostassociatedwithit,andsomemightpointoutthatitispossibletoover-diversify.Theideaisthatyoucanonlydiversifyawaysomuchrisk,thatthemarginalreturnsoneachnewassetaredecreasing,andeachtransactionhasacostintermsofatransactionfeeandalsoresearchcosts.Atsomepoint,itjustisn’tworth

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset ...LinkedInwithBackgroundInvestingAffluentMillennialInvestingSurveyHowtoInvestwithConfidenceInvestingEssentialsPortfolioManagementFinancialTechnology&AutomatedInvestingFundamentalAnalysisAlternativeInvestmentsSustainableInvestingStocksMutualFundsETFsBondsCommoditiesMarketsCryptocurrencyBrokersLaws&RegulationsSeeAllInvestingPortfolioManagementWhatIsDiversification?Diversificationisariskmanagementstrategythatmixesawidevarietyofinvestmentswithinaportfolio.Adiversifiedportfoliocontainsamixofdistinctassettypesandinvestmentvehiclesinanattemptatlimitingexposuretoanysingleassetorrisk.Therationalebehindthistechniqueisthataportfolioconstructedofdifferentkindsofassetswill,onaverage,yieldhigherlong-termreturnsandlowertheriskofanyindividualholdingorsecurity.TheBasicsofDiversificationDiversificationstrivestosmoothoutunsystematicriskeventsinaportfolio,sothepositiveperformanceofsomeinvestmentsneutralizesthenegativeperformanceofothers.Thebenefitsofdiversificationholdonlyifthesecuritiesintheportfolioarenotperfectlycorrelated—thatis,theyresponddifferently,ofteninopposingways,tomarketinfluences.Studiesandmathematicalmodelshaveshownthatmaintainingawell-diversifiedportfolioof25to30stocksyieldsthemostcost-effectivelevelofriskreduction.Theinvestinginmoresecuritiesgenerates furtherdiversificationbenefits,albeitatadrasticallysmallerrate.KeyTakeawaysDiversificationisastrategythatmixesawidevarietyofinvestmentswithinaportfolio.Portfolioholdingscanbediversifiedacrossassetclassesandwithinclasses,andalsogeographically—byinvestinginbothdomesticandforeignmarkets.Diversificationlimitsportfolioriskbutcanalsomitigateperformance,atleastintheshortterm.DiversificationbyAssetClassFundmanagersandinvestorsoftendiversifytheirinvestmentsacrossassetclassesand determinewhatpercentagesoftheportfoliotoallocatetoeach.Classescaninclude:Stocks—sharesorequi

... can confront is whether to diversify: the rewards and risks can be extraordinary. ... To complicate matters, diversification as a corporate strategy goes in and out ...Youhave1freearticlesleftthismonth.Youarereadingyourlastfreearticleforthismonth.Subscribeforunlimitedaccess.Createanaccounttoread2more.Mergers&acquisitionsToDiversifyorNotToDiversifyByansweringsixquestions,managerscanreducethegambleinthishigh-stakesgame.byConstantinosC.MarkidesbyConstantinosC.MarkidesFromtheMagazine(November–December1997)TweetPostShareSaveGetPDFBuyCopiesPrintTweetPostShareSaveGetPDFBuyCopiesPrintLeerenespañolLeremportuguêsOneofthemostchallengingdecisionsacompanycanconfrontiswhethertodiversify:therewardsandriskscanbeextraordinary.Successstoriesabound—thinkofGeneralElectric,Disney,and3M—butsodostoriesofsuchinfamousandcostlyfailuresasQuakerOats’entryinto(andexitfrom)thefruitjuicebusinesswithSnapple,andRCA’sforaysintocomputers,carpets,andrentalcars.Whatmakesdiversificationsuchanunpredictable,high-stakesgame?First,companiesusuallyfacethedecisioninanatmospherenotconducivetothoughtfuldeliberation.Forexample,anattractivecompanycomesintoplay,andacompetitorisinterestedinbuyingit.Ortheboardofdirectorsstronglyurgesexpandingintonewmarkets.Suddenly,seniormanagersmustsynthesizemountainsofdata—includinginternal-rate-of-returncalculations,marketforecasts,andcompetitiveassessments—underintensetimepressure.Tocomplicatematters,diversificationasacorporatestrategygoesinandoutofvogueonaregularbasis.Inotherwords,thereislittleconventionalwisdomtoguidemanagersastheyconsideramovethatcouldgreatlyincreaseshareholdervalueorseriouslydamageit.Butdiversificationdoesn’tneedtobequitesucharollofthedice.Yes,italwayswillinvolveuncertainty;allmajorbusinessdecisionsdo.Andindeed,thereisawealthofgoodadviceabouthowtoapproachdiversification.1Butmyresearchsuggeststhatifmanagersconsiderthefollowingsixquestions,theycanpushtheirthinkingstillfurthertoreducethegambleofdiversification.Answeringthequestionswillnotleadtoaneasygo-no-g

One way to balance risk and reward in your investment portfolio is to diversify your assets. This strategy has many complex iterations, but at its root is the simple ...SkiptoMainContent.SitenavigationFidelity.comHomeCustomerServiceProfileOpenanAccountVirtualAssistantLogInCustomerServiceProfileOpenanAccountVirtualAssistantLogOutSearchfidelity.comorgetaquoteAccounts&TradePortfolioLogInRequiredPortfolioAccountPositionsLogInRequiredAccountPositionsTradeLogInRequiredTradeActiveTraderProTransfersCashManagementLogInRequiredCashManagementBillPayLogInRequiredBillPayFullViewLogInRequiredFullViewSecuritySettingsLogInRequiredSecuritySettingsAccountFeaturesLogInRequiredAccountFeaturesStatementsLogInRequiredStatementsTaxForms&InformationRetirementDistributionsLogInRequiredFidelityRewards+LogInRequiredFidelityRewards+LogInRequiredNewAccountChecklistLogInRequiredReferaFriendPlanning&AdviceWhatWeOfferMyGoalsFinancialBasicsBuildingSavingsRoboInvestingPlusFinancialAdviceWealthManagementFindanadvisorRetirementLifeEventsNews&ResearchNewsWatchListLogInRequiredQuotesQuotesAlertsLogInRequiredMutualFundsStocksFixedIncome,Bonds&CDsETFsOptionsMarkets&SectorsIPOsAnnuitiesLearningCenterNotebookNotebookInvestmentProductsMutualFundsRetirement&IRAsTradingStocksFixedIncome,Bonds&CDsETFsOptionsSectorInvestingCashManagement&CreditCardsManagedAccounts529CollegeSavingsHealthSavingsAccountAnnuitiesLifeInsurance&LongTermCareCharitableGivingWhyFidelityTheFidelityAdvantagePlanning&AdviceTradingStraightforwardPricingInsights&ToolsSecurity&ProtectionMarketplaceSolutionsAboutFidelityCareersCustomerServiceProfileOpenanAccountVirtualAssistantLogInCustomerServiceProfileOpenanAccountVirtualAssistantLogOutHome»Research »LearningCenter »PrintEmailEmailSendto(Separatemultipleemailaddresseswithcommas)PleaseenteravalidemailaddressYouremailaddressPleaseenteravalidemailaddressMessage(Optional)Importantlegalinformationabouttheemailyouwillbesending.Byusingthisservice,youagreetoinputyourrealemailaddressandonlysendittopeop

Manyoralloftheproductsfeaturedherearefromourpartnerswhocompensateus.Thismayinfluencewhichproductswewriteaboutandwhereandhowtheproductappearsonapage.However,thisdoesnotinfluenceourevaluations.Ouropinionsareourown.Hereisalistofourpartnersandhere'showwemakemoney.Theinvestinginformationprovidedonthispageisforeducationalpurposesonly.NerdWalletdoesnotofferadvisoryorbrokerageservices,nordoesitrecommendoradviseinvestorstobuyorsellparticularstocksorsecurities.What’sinsideWhatisdiversification?Whyisdiversificationimportant?Doesdiversificationwork?HowtobuildadiversifiedinvestmentportfolioShowMoreWhatisdiversification?Whyisdiversificationimportant?Doesdiversificationwork?HowtobuildadiversifiedinvestmentportfolioWhatisdiversification?Diversificationistheactofspreadinginvestmentdollarsacrossarangeofassetstoreduceinvestmentrisk.It'spartofwhat’scalledassetallocation,meaninghowmuchofaportfolioisinvestedinvariousassetclasses,orgroupsofsimilarinvestments.Sayyouinvestedonlyindifferenttypesofproduce—apples,bananas,broccoli,andspinach—yourgeneralassetclasseswouldbe"fruits"and"vegetables."Investorshavemanyinvestmentoptions,eachwithitsownadvantagesanddisadvantages.Someofthemostcommonwaystodiversifyyourportfolioincludediversificationbyassetclass,withinassetclassesandbeyondassetclass.Diversificationisthesimplestwaytoboostyourinvestmentreturnswhilereducingrisk.Bychoosingnottoputallofyoureggsinonebasket,youprotectyourportfoliofrommarketvolatility.There areplentyoftoolsavailablethathelpmakeiteasytodiversifyyourinvestmentaccounts.» NottheDIYtypeofinvestor?Therearemanydifferenttypesoffinancialadvisorswhocanlendahandwithdiversifyingyourportfolio.Checkoutourpicksforthebestrobo-advisors.DiversificationbyassetclassThethreemaingeneralassetclassesinaninvestmentportfolioarestocks,bondsandcash.Stocks (orequities)allowinvestorstoownapieceofacompany.Stocksofferthehighestlong-termgainsbutarevolatile,especiallyinacoolingeconomy.Bonds (orfixedincome)payinteresttoinvestorswholendmoneytoacompanyorgovernment.Bon

ProductsDynamicPricingKantoxDynamicHedging®Payments&CollectionsCurrencyManagementAutomationIndustriesIndustriesTravelAdTechFoodChemicalsMechanicalEngineeringPharmaceuticalLogisticsProgramsStatichedgingLayeredhedgingMicro-hedgingCombinationsofHedgingProgramsPartnersLearnBlogResourcesGlossaryCompanyAboutKantoxCareersPressEventsContactUsLoginRequestademoHome>Glossary>RiskdiversificationRiskdiversificationRiskdiversificationconsistsofspreadingriskoutintonumerousareastoensurethatthepotentialnegativeeffectsofexposuretoanyonevariablearelimited.MoreinfoFXSpotTransactionsFXForwardContractsDynamicHedgingFXManagementAPIRiskdiversificationinacorporateenvironmentDiversifyingriskisdoneinordertoprotectacompany’sfinancialposition.Ifacompanydoesnotprotectitselfthroughdiversificationandinsteadleavesitselfexposedtoonevariable,itcouldleadtopotentiallycostlyconsequences.Forexample:aclothingchainbasedintheeurozoneplacesanannualorderwithanAmericansupplierformonthlydeliveryofgoodswithpaymentmadeeverymonth.Thetotalannualcostis$12million.Atthebeginningoftheyear,oncetheorderisplaced,thecompanywishestoprotectitsfinancialpositionandmaximiseprofitsasmuchaspossible.Giventheinherentvolatilityincurrencymarkets,thecompanydecidestodiversifytheriskofpayinglaterintheyearorpayingnow,shouldtherebeadecreaseinthevalueoftheeuroagainsttheU.S.dollar,anexampleofcurrencyrisk.So,thecompanyelectstoformulateastrategybasedonholdingaportionofcash,purchasingaforwardcontractandpurchasinganoptionscontract.Differenttypesofhedgingproductsofferdifferentadvantages.Therefore,althoughitismoreexpensivetobuymorehedgingproducts,itcoversmorepotentialeventualities.Ifthecompanygoesunhedged,withoutpurchasinganyhedgingproductsorformulatingamanagementstrategy,itleavesitselfatthemercyofthemarkets.Riskdiversificationisseenasabsolutelyessentialtoensurethatprofitlossesareminimisedandtoprotectacompany’sbottomline. KantoxWeusecookiesonourwebsitetogiveyouthemostrelevantexperiencebyrememberingyourpreferencesandrepeatvisits.Byclicking“Accept”

Many translated example sentences containing "diversify risk" – Chinese-English dictionary and search engine for Chinese translations. LookupinLingueeSuggestasatranslationof"diversifyrisk"CopyDeepLTranslatorLingueeENOpenmenuTranslatorTranslatetextswiththeworld'sbestmachinetranslationtechnology,developedbythecreatorsofLinguee.LingueeLookupwordsandphrasesincomprehensive,reliablebilingualdictionariesandsearchthroughbillionsofonlinetranslations.BlogPressInformationLingueeApps  Linguee[gb]English<->[cn]Chinese[gb]English--->[cn]Chinese[cn]Chinese--->[gb]English[gb]English<->[de]German[gb]English<->[fr]French[gb]English<->[es]Spanish[gb]English<->[pt]Portuguese[gb]English<->[it]Italian[gb]English<->[ru]Russian[gb]English<->[jp]Japanese[gb]English<->[pl]Polish[gb]English<->[nl]Dutch[gb]English<->[se]Swedish[gb]English<->[dk]Danish[gb]English<->[fi]Finnish[gb]English<->[gr]Greek[gb]English<->[cz]Czech[gb]English<->[ro]Romanian[gb]English<->[hu]Hungarian[gb]English<->[sk]Slovak[gb]English<->[bg]Bulgarian[gb]English<->[si]Slovene[gb]English<->[lt]Lithuanian[gb]English<->[lv]Latvian[gb]English<->[ee]Estonian[gb]English<->[mt]MalteseMorelanguagesENZHLinguee+AI=DeepLTranslatorForlongertexts,usetheworld'sbestonlinetranslator!UseDeepLTranslatortoinstantlytranslatetextsanddocumentsTryDeepLTranslatordiversifyriskTranslateasyoutypeWorld-leadingqualityDraganddropdocumentsTranslatenow▾DictionaryEnglish-ChineseUnderconstructiondiversify—多样化·多元化diversifyn—分散nriskn—危险nrisk—危性©LingueeDictionary,2021▾Externalsources(notreviewed)InvestingininfrastructureacrosstheAsia-Pacificregionpromisesnotonlyhighratesoffinancial[...]return,butalsoopportunitiestodiversifyrisk.daccess-ods.un.orgdaccess-ods.un.org对亚太区域基础设施的投资可望带来较高的金融回报率，也有可能带来风险多样化的机会。

daccess-ods.un.orgdaccess-ods.un.orgItwassuggestedthattheregioncoulddiversifyitsriskbypromotingintraregionaltradeandregionalfinancialcapitalflowsinorderto[...][...]expanddomesticdemandandconsumption.daccess-ods.un.orgdaccess-ods.un.org有代表建议，本区域可通过促进区域内

Diversifiable and non-diversifiable riskDiversification(finance)FromWikipedia,thefreeencyclopediaJumptonavigationJumptosearchTheprocessofallocatingcapitalinawaythatreducestheexposuretoanyoneparticularassetorriskThisarticlemaybeunbalancedtowardscertainviewpoints.Pleaseimprovethearticlebyaddinginformationonneglectedviewpoints,ordiscusstheissueonthetalkpage.(March2016)FinanceMarketsAssetsBondCommodityDerivativesForeignexchangeMoneyOver-the-counterPrivateequityRealestateSpotStockParticipantsInvestorinstitutionalRetailSpeculatorLocationsFinancialcentresOffshorefinancialcentresConduitandSinkOFCsInstrumentsBondCashCollateraliseddebtobligationCreditdefaultswapTimedeposit(certificateofdeposit)CreditlineDepositDerivativeFuturescontractIndemnityInsuranceLetterofcreditLoanMortgageOption (callexoticput)PerformancebondsRepurchaseagreementStockSecuritySyndicatedloanSyntheticCDOCorporateGeneralAccountingAuditCapitalbudgetingCreditratingagencyRiskmanagementFinancialstatementsTransactionsLeveragedbuyoutMergersandacquisitionsStructuredfinanceVenturecapitalTaxationBaseerosionandprofitshifting(BEPS)CorporatetaxhavenTaxinversionTaxhavenTransferpricingPersonalCredit /DebtEmploymentcontractFinancialplanningRetirementStudentloanPublicGovernmentspendingFinalconsumptionexpenditureOperationsRedistributionTransferpaymentGovernmentrevenueTaxationDeficitspendingBudget (balance)DebtNon-taxrevenueWarrantofpaymentBankingCentralbankDepositaccountFractional-reserveFull-reserveLoanMoneysupplyListsofbanksBankregulationBankinglicenseBaselAccordsBankforInternationalSettlementsFinancialStabilityBoardDepositinsuranceSeparationofinvestmentandretailbankingRegulation ·FinanciallawInternationalFinancialReportingStandardsISO31000ProfessionalcertificationFundgovernanceEconomichistoryPrivateequityandventurecapitalRecessionStockmarketbubbleStockmarketcrashAccountingscandalsvteInfinance,diversificationistheprocessofallocatingcapitalinawaythatreducestheexposuretoanyoneparticularassetorrisk.Acommonpathtowardsdiversifi

Diversify risk definition: When an organization or person diversifies into other things, or diversifies their range... | Meaning, pronunciation, translations and ...DictionaryGrammarBlogSchoolScrabbleThesaurusTranslatorQuizMoreResourcesMorefromCollinsEnglishChineseFrenchGermanHindiItalianPortugueseSpanishGrammarHomeEnglishEnglishUsageGrammarPatternsFrenchGermanItalianSpanishEnglishGrammarinHindiLanguageLoversLearningEnglishLearningFrenchLearningGermanLearningItalianLearningSpanishScrabbleHomeWordcheckerHelpToolsEnglishThesaurusWordListsAmericanThesaurusCollinsWordoftheDayPaulNobleMethodResourcesVideoPronunciationWordoftheYearAboutUsAdvertisewithusB2BPartnershipsCollinsCOBUILDCollinsELTContactUsDictionaryAPIHarperCollinsPublishersWordBanksEnglishFrenchSpanishMoredictionariesMoreHindiChineseGermanItalianPortugueseShare×Credits×  ExamplesentencesdiversifyriskTheseexampleshavebeenautomaticallyselectedandmaycontainsensitivecontent.Readmore…Forthefuture,surely,oneofthekeylessonstolearnisaboutdiversifyingrisk.Times,SundayTimes(2010)Afundoffundsinvestsinanumberofhedgefunds,helpinginvestorstodiversifyrisk.Times,SundayTimes(2006)ThelessonIlearntwastodiversifyriskandoptformanagedfundsinstead.Times,SundayTimes(2015)Workersdonotplacealloftheirsavingsinthefirm,becausetheywishtodiversifyrisk.Times,SundayTimes(2013)Theproblemhascomewithfinancialproductsthathavenotdiversifiedrisksomuchasensuredthecontaminationoftheentirebankingsystem.Times,SundayTimes(2009)Definitionof 'diversify'diversify(daɪvɜːʳsɪfaɪ,USdɪ-)Explore'diversify'inthedictionaryverbWhenanorganizationorpersondiversifiesintootherthings,ordiversifiestheirrangeofsomething,theyincreasethevarietyofthingsthattheydoormake.[...]diversification(daɪvɜːʳsɪfɪkeɪʃən,USdɪ-)Wordforms:pluraldiversificationsvariablenounSeefullentryCOBUILDAdvancedEnglishDictionary.Copyright©HarperCollinsPublishersDefinitionof 'risk'risk(rɪsk)Explore'risk'inthedictionaryvariablenoun[NOUNthat]Ifthereisariskofsomethingunpleasant,thereisapossibilitythatitwill

Different Types of RiskYourPrivacyRightsInvestopediaandourthird-partypartnersusecookiesandprocesspersonaldatalikeuniqueidentifiersbasedonyourconsenttostoreand/oraccessinformationonadevice,displaypersonalizedadsandforcontentmeasurement,audienceinsight,andproductdevelopment.TochangeorwithdrawyourconsentchoicesforInvestopedia.com,includingyourrighttoobjectwherelegitimateinterestisused,clickbelow.Atanytime,youcanupdateyoursettingsthroughthe"EUPrivacy"linkatthebottomofanypage.Thesechoiceswillbesignaledgloballytoourpartnersandwillnotaffectbrowsingdata.ListofPartners(vendors)Weandourpartnersprocessdatato:Activelyscandevicecharacteristicsforidentification.Useprecisegeolocationdata.Storeand/oraccessinformationonadevice.Selectpersonalisedcontent.Createapersonalisedcontentprofile.Measureadperformance.Selectbasicads.Createapersonalisedadsprofile.Selectpersonalisedads.Applymarketresearchtogenerateaudienceinsights.Measurecontentperformance.Developandimproveproducts.ListofPartners(vendors)IAcceptShowPurposesPartOfHowtoInvestwithConfidenceExploreTheGuideOverviewStockMarketBasicsOverviewStockMarketDefinitionPrimaryandSecondaryMarketsHowtoBuy/SellStocksMarketHoursStockExchangesHowStockInvestingWorksOverviewWhatOwningaStockMeansTheBasicsofOrderTypesPositionSizingExecutingTradesWhentoSellaStockIncome,Value,GrowthStocksCommissionsBrokerageAccountsBestInvestmentAppsInvestingvs.TradingOverviewInvestingandTradingDifferencesStocksvs.ETFsStocksvs.MutualFundsETFsvs.MutualFundsBonds&FixedIncomeOverviewWhatIsaBond?BondYieldDefinitionBasicBondCharacteristicsHowtoBuyaBondCorporateBondsGovernmentBondsMunicipalBondsBondRisksOptions&FuturesOverviewOptionsvs.FuturesEssentialOptionsTradingManagingaPortfolioOverviewUnderstandingRiskToleranceDiversificationMeasuringInvestmentReturnsCorporateActionsDividendsStockResearchOverviewStockFundamentalsEssentialsofAnalyzingStocksSectorsEvaluatingCompanyFinancialsTechnicalAnalysisInvestopediaInvestingTableofContentsExpandWhatIsDiversification?UnderstandingDiversi

Diversifying risk is done in order to protect a company's financial position. If a company does not protect itself through diversification and instead leaves itself ...ProductsDynamicPricingKantoxDynamicHedging®Payments&CollectionsCurrencyManagementAutomationIndustriesIndustriesTravelAdTechFoodChemicalsMechanicalEngineeringPharmaceuticalLogisticsProgramsStatichedgingLayeredhedgingMicro-hedgingCombinationsofHedgingProgramsPartnersLearnBlogResourcesGlossaryCompanyAboutKantoxCareersPressEventsContactUsLoginRequestademoHome>Glossary>RiskdiversificationRiskdiversificationRiskdiversificationconsistsofspreadingriskoutintonumerousareastoensurethatthepotentialnegativeeffectsofexposuretoanyonevariablearelimited.MoreinfoFXSpotTransactionsFXForwardContractsDynamicHedgingFXManagementAPIRiskdiversificationinacorporateenvironmentDiversifyingriskisdoneinordertoprotectacompany’sfinancialposition.Ifacompanydoesnotprotectitselfthroughdiversificationandinsteadleavesitselfexposedtoonevariable,itcouldleadtopotentiallycostlyconsequences.Forexample:aclothingchainbasedintheeurozoneplacesanannualorderwithanAmericansupplierformonthlydeliveryofgoodswithpaymentmadeeverymonth.Thetotalannualcostis$12million.Atthebeginningoftheyear,oncetheorderisplaced,thecompanywishestoprotectitsfinancialpositionandmaximiseprofitsasmuchaspossible.Giventheinherentvolatilityincurrencymarkets,thecompanydecidestodiversifytheriskofpayinglaterintheyearorpayingnow,shouldtherebeadecreaseinthevalueoftheeuroagainsttheU.S.dollar,anexampleofcurrencyrisk.So,thecompanyelectstoformulateastrategybasedonholdingaportionofcash,purchasingaforwardcontractandpurchasinganoptionscontract.Differenttypesofhedgingproductsofferdifferentadvantages.Therefore,althoughitismoreexpensivetobuymorehedgingproducts,itcoversmorepotentialeventualities.Ifthecompanygoesunhedged,withoutpurchasinganyhedgingproductsorformulatingamanagementstrategy,itleavesitselfatthemercyofthemarkets.Riskdiversificationisseenasabsolutelyessentialtoensurethatprofitlossesarem