What is risk diversification? 20. What is risk diversification?

Risk diversification is an investment strategy that adopts diversification to avoid investment risks in ** investment. Of course, the investment object is not only valuable**, but also time deposits and various insurance funds. Pension insurance metal in the deposit group, ** jewelry, antiques, etc. belong to the property group.

As far as the deposit group is concerned, if the value of the currency is stable, then it is the safest, although it is less profitable. In the case of the property group, although it is more troublesome and risky to keep, it is most beneficial to preserve value in inflationary times. In the priced, it is divided into two kinds of definite income and uncertain return, so that investors in the valuable investment, in addition to looking at the **, but also to see how much proportion of different ** is appropriate.

The most common approaches to risk diversification are the "dichotomy" and the "trichotomy".

Diversification is the division of a complete high-risk risk into multiple risks. A few scattered ones become low-risk. Taken together, it becomes a high-risk risk. So that's diversification.

After so many years of buying insurance, do you know what real risk diversification is?

Market Risk. Also known as non-divergeable risk.

or systemic risk, which is the possibility of financial losses to all companies in the market due to changes in certain factors.

Company-specific risk, also known as divergeable risk or non-systematic risk, refers to the possibility of economic loss due to events specific to individual companies that occur only to individual companies. The difference is that market risk cannot be eliminated by investing in a portfolio of funds, and a risk return can be claimed; Company-specific risks can be eliminated through the portfolio and no risk-return claim can be claimed.

Market risk, also one of the most common risks in the financial system, is the closing of a trade.

The risk of a negative change in the market value of the trading portfolio during the period required for realization. The gain from the market portfolio is the sum of the gains and losses generated by each trade. Any decrease in value will result in a market loss for the corresponding period.

Diversible risk, also known as unsystematic risk, refers to the possibility that certain factors will cause economic losses to individual certificates. Diversible risk is a risk that can be avoided by diversification. Characteristics of diversifier risk:

1. The diversible risk is caused by special factors, such as the management problems of enterprises, the labor problems of listed companies, etc.

2. The diversible risk only affects some of the best returns. It is the part of the risk that is unique to a company or industry. For example, if the real estate industry is sold**, it will appear when the real estate industry is in a recession.

3. Diversible risks can be reduced by diversifying investments, but they cannot be completely eliminated.

Risk diversification and risk transfer are both commonly used methods in risk management, with the main purpose of reducing the occurrence of risks and the cost of taking risks. The differences between them are as follows:

1.Risk diversification: It refers to the diversification of risks into different risk sources or investment varieties to reduce the risk of total lead body.

Risk diversification is usually achieved through portfolio or asset allocation. For example, buy multiple ** and ** in different industries, different varieties and different regions in your portfolio at the same time to diversify investment risks. Risk diversification is the process of mitigating risk by increasing diversity, but it does not eliminate it.

2.Risk transfer: refers to the transfer of risk to another party in order to transfer risk liabilities and costs.

Risk transfer is usually achieved through instruments such as insurance and derivatives. For example, buying insurance can transfer the risk of property damage to the insurance company, while trading in the derivatives market** and options can transfer the risk of market volatility to other investors. Risk transfer is the mitigation of risk by transferring the risk to another party, but the risk remains.

In conclusion, risk diversification and risk transfer are both commonly used risk management methods, but they have different ends and means. Risk diversification is the reduction of overall risk by increasing diversity; Whereas, risk transfer is the transfer of risk responsibilities and costs by transferring risk to other parties. These two methods can also be used in combination in real situations to achieve better risk management results.

Since you want to invest, there will always be risks. In investment theory, "risk" can be interpreted as the possibility of a difference between the actual return and the expected return, which of course includes the possibility of loss of principal. Each investment vehicle involves different levels of risk, which can be divided into market risk and non-market risk.

Market risk refers to risks that can affect the broader market, such as changes in interest rates, tax cuts, or economic recession. Non-market risk refers to risks that are unique to individual investment projects, such as a company's profitability due to a product problem, or a strike that disrupts production.

Diversify across asset classes.

Market risk is something investors can't avoid, which explains why, when the broader market is in a general decline, the share price of a well-profitable and well-managed company may also follow the market**. Non-market risk is a risk specific to individual investment projects, and investors can achieve the goal of reducing non-market risk through diversification. The so-called "diversification" is the investment of money in different types of assets.

A few years ago, the market is extremely hot so that many investors have a magnificent fantasy and expectation, even in the face of the market downturn in recent years, there are still many people who hope to make their assets increase rapidly, so they will concentrate their assets on a certain vote. In fact, these investors have violated one of the most important principles of investing, which is the principle of diversification. For example, the portfolio can include public stocks, real estate stocks, industrial stocks, bank stocks, etc., with the aim of building a portfolio with a low correlation coefficient to reduce risk; In addition, when the number of investments increases, the risk of the portfolio is relatively reduced.

To put it simply, if you divide the funds evenly among 50**, even if one of the companies fails, the loss will only account for 2% of the total investment, which is much less than the loss of investing in the company that is about to fail. To use a simple colloquialism, it is to spread the eggs in different baskets.

Funds are invested in different markets.

To further diversify your investment, you can spread your money across different markets that don't rise and fall at the same time.

For example, factors affecting stock prices include the trend of international and local interest rates, local and international economic development cycles, and the fiscal and monetary policies of local governments. The inconsistency between these markets reduces the correlation coefficient between each other's share prices, which explains the lower volatility of the international** portfolio than that of a single country.

Portfolio popularity.

In recent years, portfolios managed by professional** managers have become increasingly popular in the market. It is a portfolio of various investments, which can include different regions and industries**, bonds, fixed deposits, etc. **The manager controls the relationship between the components and the risk in the portfolio, so that the risk of individual investments in the portfolio is diversified and minimized, while maintaining a better return.

This is a great way to increase the value of your assets.

The above is a detailed introduction to the principles of diversification of risk investment, but diversification can only reduce risks, but cannot completely eliminate risks, which should be noted.

Market risk: Also known as non-divergeable risk or systemic risk, it refers to the possibility of economic losses to all companies in the market due to changes in certain factors.

Company-specific risk: Also known as divergeable risk or non-systematic risk, it refers to the possibility of economic loss due to events unique to individual companies and only to individual companies.

Difference: Market risk cannot be eliminated through a portfolio; Company-specific risks can be eliminated through the portfolio.

Market risk can claim risk-reward; Company-specific risks cannot be claimed as risk-reward.

Market risk brings economic losses to all companies; The unique risks of the company's beam stool only bring economic losses to individual companies.

Market risk is also one of the most common risks in the financial system, and it refers to the risk of a negative change in the market value of a trading portfolio during the period required for the closing of a trade to be realized. The gain from the market portfolio is the sum of the gains and losses generated by each trade. Any decrease in value results in a market loss for the corresponding period.

Coarse. It is not appropriate to use an indicator of the holding time of a financial instrument to measure market risk, as the bank can liquidate it at any time during this period or apply hedging to hedge against losses that may result from future changes. In practice, the risk refers to the fluctuation in the value of the market in the shortest period of time required to liquidate the market transaction. That's why market risk only exists during the monetization period.

Although the realisation period is short, the value of the currency can still fluctuate greatly under the conditions of market instability. If it happens that the liquidity of these market instruments is poor, then it is necessary to make a large concession to sell them. The longer the realisation period, the more likely it is that the market value of the oak stove will change significantly.

In general, the length of the monetization period varies depending on the type of instrument. Foreign exchange trading is generally shorter (one day), while some derivatives are less liquid and generally have a longer realisation period. In either case, the regulator will set rules that set the length of the monetization period.