Impact of Number of Securities Held on Risk Level of Portfolio
An approach to investment management analyzed and popularized by Harry Markowitz and encouraged by widespread acceptance of the usefulness of the capital asset pricing model (CAPM). With diversification, risk can be reduced relative to the average return of a portfolio by distributing assets among a variety of asset classes such as stocks, bonds, money market instruments, and physical commodities, as well as by diversifying within these categories and across international boundaries. Diversification usually reduces portfolio risk (measured by return variability) because the returns (both positive and negative) on various asset classes are not perfectly correlated. See also Modern Portfolio Theory, Non-Systematic Risk, Systematic Risk, Variance Drain.
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