a strategy to increase the variety of business, service, or product types within an organization. Diversification can be a growth strategy, taking advantage of market opportunities, or it may be aimed at reducing risk by spreading interests over different areas. It can be achieved through acquisition or through internal research and development, and it can involve managing two, a few, or many different areas of interest. Diversification can also be a corporate strategy of investment in acquisitions within a broad portfolio range by a large holding company. One distinct type is horizontal diversification, which involves expansion into a similar product area, for example, a domestic furniture manufacturer producing office furniture. Another is vertical diversification, in which a company moves into a different level of the supply chain, for example, a manufacturing company becoming a retailer. A well-known example of diversification is the move of BIC, the ballpoint pen manufacturer, into the production of disposable razors.
Wiktionary Definition for: Diversification
#The act of making various, or of changing form or quality.
#State of diversity or variation; variegation; modification; change; alternation.
This paper examines empirically the relationship between the internal technological profile and the diversification through strategic alliances of the largest 219 industrial firms world-wide. It explores three related issues. First, the paper shows that firm's internal technological diversification is more pronounced than external technological diversification. Second, it confirms the idea...
This paper, using a large database of hedge funds over the 1990-2001 period, studies the impact of diversification on naively constructed randomly chosen and equally weighted hedge fund portfolios. It also provides some insight into style diversification benefits, as well as the inter-temporal evolution of diversification effects on hedge funds.
Any investor who loaded up on growth stocks or technology funds a few years ago should now be able to see the advantage of owning some other kinds of assets as well. On the other hand, proper diversification is not hard for investors who have enough money. The question this...
This article tries to clarify the relationship between the number of stocks held in a portfolio and diversification. It has been found out that fifteen-stock portfolios, on average, achieve only 75%-80% of available diversification, not the 90%-plus typically believed. Even 60-stock portfolios achieve less than 90% of full diversification. Conscious...
This paper aims at a better understanding of how firms arrange and profit from their technological competencies. In particular, it presents a contribution to the diversification-performance literature by dealing with a still poorly researched aspect of diversification, namely technological diversification, while controlling for market diversification. Results suggest that firms that...
This paper examines business diversification of financial companies using macro and micro level data on 19 countries for the period 1996-1999. Standard Industrial Classification SIC codes are used to measure the level of diversification, which is defined here as the number of sectors or industries a given financial company operates...
"Firms undertake a variety of actions to reduce risk through diversification, including entering diverse lines of business, taking on project partners, and maintaining portfolios of risky projects such as R&D or natural resource exploration. By a well-known argument, securities holders do not directly benefit from risk-reducing corporate diversification when...
Extensive research exists on the relationship between diversification and financial performance of firms. Very few of these studies focus on the insurance industry. This paper seeks to provide empirical evidence on the relationship between property liability insurers' product diversification and their risk-adjusted return using cross section and time-series data for...
This paper examines the portfolios of more than 40,000 equity investment accounts from a large discount brokerage during a six year period in recent U.S. capital market history. Investors are aware of the benefits of diversification but they appear to adopt a 'naive' diversification strategy where they form portfolios without...
This paper proposes that diversification reduces the value of specialized organizational capital by altering firms' routines, formal contract structures and strategies. The author tests the proposition that diversification creates organizational adaptation costs using rich, novel microdata on taxicab firms from the Economic Census before and after a diversification wave into...
The diversification within real estate is not as costless as other financial assets such as stocks or bonds. The local nature of real estate implies that investment managers may need to specialize for simplicity or by portfolio objective. To address this trade-off between diversification and specialization this study quantifies the...
Property portfolio diversification takes many forms, most of which can be associated with asset size. This paper tests the empirical relationship between property portfolio size, diversification, and risk, in Institutional portfolios in the UK, during the period from 1989 to 1999 to determine which of these two characterizations is more...
A common problem faced by taxable investors is that of how much to diversify either a low cost-basis single asset or concentrated portfolio. While tax-exempt theory is clear on the benefits of diversification and there are useful industry-standard methods for addressing this, in the presence of taxes there are no...
There is mixed evidence on the effectiveness of diversifying real estate portfolios geographically. Some suggest disappointing results are traceable to the use of geographic areas that are too crudely defined. This article divides Hong Kong into submarkets, and finds that this intracity geographic diversification produces marginally improved portfolio performance in...
This paper studies the role of diversification in reducing the volatility of corporate bond returns induced by changes in credit spreads. Specifically, it looks at how credit risk can be diminished when a portfolio is diversified across countries, industry sectors, maturities, seniority types and credit ratings. The role of national...
Aggressive investors often pursue high returns by taking unusually high risks, sometimes abandoning prudence and diversification. This article shows the combination of aggressive strategies that is designed to give investors plenty of diversification, keep their risks firmly under control and to produce above-average returns at the same time. The article...
This paper examines the international diversification benefits subject to portfolio constraints - in particular, constraints on short selling. It shows that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in emerging markets. This result is robust to investment restrictions on nonnative...
Recent trends in the international equity markets have fueled debate over the diversification benefit of non-U.S. equity. Poor returns and an increasing correlation with the U.S. market have caused some investors to question the future of using non-U.S. equity as a diversifier. It is believe that non-U.S. equity will continue...
This paper analyzes the relationship between diversification and several distributional characteristics that have risk implications for stock returns. The paper develops a flexible three-parameter distribution to model the stock returns. Using data of the current 30 DJIA stocks, it shows that an investorÆs strategy of diversification depends on the measures...
There has always been debate that whether, to diversify or not to diversify? For corporations in pursuit of a sound acquisitions strategy, this is indeed the eternal question. Traditional wisdom holds that diversification offers protection against the vagaries of the business cycle, but throughout the mergers-and-acquisitions boom of the 1990s,...
