Comparison of 2 Portfolios: Undiversified and Diversified Among Industries of Kazakhstan.

3192 Words Feb 8th, 2012 13 Pages
I. Introduction. a. Objective(s). It is out of doubt that no matter how diversified the portfolio is, systematic risk can never be eliminated. The risk associated with individual stocks can be reduced, but general market risks affect almost every stock. So it is important to diversify between different asset classes and industries as well. The key is to find a medium between risk and return. The objective of this paper is to discuss importance of diversification of investment portfolio within industries and project the theory on the example of two portfolios. The first portfolio tends to be undiversified and consists of shares of companies from banking sector. The undiversified portfolio is as follows: Portfolio 1 …show more content…
Stock prices of all of the companies fell down dramatically in that year, as did Kazakhstan’s stocks (see Appendix on stock prices for 2009,2010). So, authors of the paper want to see, whether the assumption is true or not.

II. Literature Review. Investment portfolios may vary from company to company, from manager to manager. Their content and structure may differ depending on the wealth, strategy, and risk attitude of the holder. However, any portfolio needs proper management and competitive treatment in order to meet certain expectations in terms of return and risk. In fact, diversification is the key to the management of portfolio risk because it allows investors to significantly lower portfolio risk without adversely affecting return. While the return on a diversified portfolio may be equal to the average investment in the portfolio, the volatility will be less. This is why a diversified multi-industry mutual fund is less volatile than a single industry fund or one that is highly segmented, like a small-cap fund (Reier, 2004). In order to reduce the risk of the portfolio companies try to diversify it by allocating securities in it by portions. Portfolio may comprise different securities such as stocks, bonds, treasury notes, currency and even commodities. Some investment managers prefer to invest in bonds. Corporate bonds are debt

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