The term diversification designates an expansion of the assortment. It is in particular in the purchase to the products of an enterprise and for investments of funds common.

Product diversification

The product diversification is present, if an enterprise introduces a new line. The opposite is the retreat or the Elimination.

Directions

• horizontal: An enterprise takes up a product of the same Wirtschaftsstufe to its assortment. There is a material connection with the past product program.

e.g.: A passenger car manufacturer produces truck.

• vertical: Orients itself at the creation of value chain and designates the extension of the production program around products from pre and stored Wirtschaftsstufen (also forward/backwards integration called)

e.g.: A restaurant operates agriculture for the production of favorable meat and vegetable.

e.g.: An automaker produces tires.

• laterally: Designates the extension of the production program around products, which are completely new for the enterprise and in no technical or economic connection with the past products.

e.g.: An automaker produces refrigerators

• concentrically: Existing core authority of an enterprise is exported into other creation of value chains.

e.g.: An automaker, who coordinates particularly well suppliers, does this in the aviation industry.

A possible measure for the measurement of the diversification is the Berry index.

Forms

• internally: The enterprise grows from own Kraft and develops the product;
• Assumption: Another enterprise is in addition-bought including the desired products;
• Co-operation: New products are developed with a partner. Co-operation can be differently intensive, of loose Joint ventures up to strategic alliances and networks.

Plant diversification

Within the investment of funds range of diversification one speaks, if if possible into different financial assets one invests.

Risk diversification one calls the effect from it arises that one combines two or more securities in a Portfolio. In such a way won Portfolio has a smaller risk than the two individual securities. A condition is, it possesses to each other a coefficient of correlation, which is smaller than 1.

Risk one calls the variance and/or the standard deviation of the securities and/or the Portfolios. A variance-minimal Portfolio can be deduced in dependence of the coefficient of correlation. If all securities are correlated to 100 per cent in the Portfolio, one weights the security with the smaller risk more strongly.

This can be: Shares, bonds, real estates, options and Futures or alternative plants. There are substantial differences within the individual eating classes. For example bonds can be legal securities like Federal loans and mortgage bonds, in addition, riskier forms such as enterprise loans, foreign loans (for example in US Dollar or for example Ukrainian currency). The investment risk differs thereby substantially.

The investment objective can be defined in two kinds:

1. Net yield maximization: The goal of the diversification can it be attained by suitable mixture of the Assets as high a net yield as possible with equal lasting, calculated risk.
2. Minimizing the risk: The goal of the diversification is the delimitation of the exposure to loss during a given net yield expectation (for example 9% per year).

Net yield and risk stand in close dependence (correlation) to each other. This connection is called frequently chance/risk relationship. It is called simplifying shares/pension relationship in a depot.

Measure for the risk the is and shortfall approach. All mass in the financial asset are statistic sizes and indicate only one loss or probability of profit. Therefore a maximum loss/profit cannot be guaranteed, but be assured only with a certain probability. In pronounced boom phases or with anomalies of market these sizes are often missed, i.e. there is no profit. Even substantial losses can develop, which go beyond the expected risk.

Task of an experienced investment consultant is it to achieve exactly this correct mixture of the different eating classes and on a long-term basis to obtain thus a positive value development of the invested capital.

By the increasing mechanization it is possible to compute for the Gesamtportfolio the risk and further mass contained in it. Modern computer procedures make a stress test possible. Worst case and best case situations in the computer are simulated and the effects on the Portfolio are analyzed. According to the simulation result opposite standpoints are developed, in order to neutralize these risks. Since this represents a very complex procedure, it is accomplished from cost reasons only with particularly large Portfolios (particularly for institutional investors or for the Portfolio of a fund).

The diversification effect is that the risk is measured by the variance of a Porfolios without lower than the risk of the security with the minimum risk.

Diversifyable systematic risks are not the foreign exchange risk, interest, inflation and the development of the gross domestic product.

See also

• Portfoliotheorie

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