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Conversely, the diversified portfolio's return will always be higher than that of the worst-performing investment. So by diversifying, one loses the chance of having invested solely in the single asset that comes out best, but one also avoids having invested solely in the asset that comes out worst.
By creating a well-diversified portfolio, you’ll have investments spread across many different sectors and asset classes. This will put you in a better position to withstand market volatility ...
For example, a well-diversified investment portfolio might consist of large- and small-cap stocks, international stocks and bonds, commodities and various income investments, like preferred and/or ...
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
All efficient portfolios, each represented by a point on the efficient frontier, are well-diversified. While ignoring higher moments of the return can lead to significant over-investment in risky securities, especially when volatility is high, [ 3 ] the optimization of portfolios when return distributions are non- Gaussian is mathematically ...
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