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Essay / Research Paper Abstract
This 8 page paper answers question set by the student. The first looks at the value of diversification in an investment portfolio and explains this with a mathematical table. The second part of the paper explains the he Markowitz efficient frontier and how this fits in with the theories of diversity. The last two parts of the paper choose five diversified shares from the FTSE 100 and looks at their performance over a 1 month period. The bibliography cites 3 sources.
Page Count:
8 pages (~225 words per page)
File: TS14_TEdiversc.rtf
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Unformatted sample text from the term paper:
of the capital asset pricing model. CAPM was extension of the modern portfolio theory was introduced in 1964 by William Shape.
The way in which it expands of the idea of the modern portfolio theory is in the way it allows for specific and systematic risks and consider how and if
these can be mitigated or eliminated with diversification. This is a theory that allows for the calculation of risk and the compensations
that are due to that risk. The systematic risk of any single asset can be reduced by the investor or fund manger ensuring that there is diversification within the investment
fund. This spread of risk reduces the overall risk of the fund, this is known as systematic risk. The risk of any investment is usually measured in terms of
the beta, the greater the beta the higher the potential risk and also the potential reward. In this theory there is
a compensation to be gained from taking this systematic risk, but if a singe company is invested in then there will be a specific risk, and it is this specific
risk that the market does not compensate for. The reason for this is that this specific risk can be diversified away. The model does make some assumptions these are that
there are no costs involved in the transactions such as taxes, stamp duties or sales costs, that all investors will have the same investment profiles, expecting the same returns
and performance on risky investments and that all investors maintain the same investment horizons. If we want to consider the way that
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