BNET Business Dictionary
Business Definition for: Diversification
- 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.
Additional Resources
- Technological Diversification and Strategic Alliances
- 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...
- White papers 2002-02-01
- The Truth About Diversification By The Numbers
- 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...
- White papers 2000-01-01
- The Dish on Diversification
- Yes, the strategy failed you in the crash, as virtually every asset class except Treasuries took a heart-stopping dive. But if you're hoping to climb out of the hole, it's still your best alternative. Why now may be the time to begin buying stocks, REITs and commodities again... It's...
- Articles 2009-03-27
- Corporate Diversification and Agency
- "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...
- White papers 2000-01-01
- Diversification: It Really Doesn't Matter
- Dividend Inc. submits: The idea of a diversified holding of stocks is often said to save many investors from losing large amounts of money. However, the concept of diversification often is misunderstood in its most basic context. Diversification only matters when an investor is spread among...
- External links 2009-03-25
- Superior Diversification on a Shoestring Budget
- 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...
- White papers 2003-01-01
- Technological Diversification and Economic Performance: A Within-Industry Perspective
- 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...
- White papers 2004-08-01
- The Role of OPEC - Boom Stalls Diversification & Reforms.
- The pace of economic diversification and reforms in OPEC states has, once again, been stalled by high oil prices. As in 1996, when high oil prices caused a halt in reforms needed for economic diversification, in 2003 the success of an OPEC strategy p The pace...
- Research articles 2003-12-08
- Risk and Diversification as an Entrepreneur
- No one is infallible when it comes to business. I learned this lesson pretty early on when I started my first business. With the naivety of a college student, I approached DVA my first company thinking that business was like a mid-term or a final exam, and that success was...
- Blog posts 2007-04-06
- How Much Diversification Is Enough?
- Levels of diversification in the portfolios of investors present a puzzle. The benefits of diversification, measured by the rules of mean-variance portfolio theory, have increased in recent years, yet levels of diversification did not increase, remaining much below their optimal levels. Investors in behavioral portfolio theory construct their portfolios as...
- White papers 2002-09-01
- Does International Diversification Increase The Sustainable Withdrawal Rates From Retirement Portfolios?
- The research reported in this article examines the effect of international equity diversification on the sustainability of a range of withdrawal rates from retirement portfolios with varying U.S. and international stock/bond asset allocations. Sustainability of a withdrawal rate is measured by portfolio success rates—that is, the percentage of 1,000 simulated...
- White papers 2003-01-01
- International Diversification In The 2000s – Stay The Course
- 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...
- White papers 2003-01-01
- The Importance of Scale Economies and Geographic Diversification in Community Bank Mergers
- Mergers of community banks across economic market areas potentially reduce both idiosyncratic and local market risks. A merger may reduce idiosyncratic risk because the larger post-merger bank has a larger customer base. Negative credit and liquidity shocks from individual customers would have smaller effects on the portfolio of the merged...
- White papers 2001-11-01
- Diversification In Banking Is Noninterest Income The Answer?
- The U.S. banking industry is steadily increasing its reliance on nontraditional business activities that generate fee income, trading revenue, and other types of noninterest income. This paper assesses potential diversification benefits from this shift. At the aggregate level, declining volatility of net operating revenue reflects reduced volatility of net interest...
- White papers 2002-09-23
- An Investigation Into the Diversification-Performance Relationship Among Property-Liability Insurers
- 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...
- White papers 2004-01-13
- Credit Risk Diversification: Evidence From the Eurobond Market
- 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...
- White papers 2003-09-02
- Hedge Fund Diversification: How Much Is Enough?
- 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.
- White papers 2002-07-01
- Diversification Benefits of Emerging Markets Subject to Portfolio Constraints
- 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...
- White papers 2003-02-11
- Equity Portfolio Diversification
- 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...
- White papers 2001-12-01
- Market Structure and Business Diversification of the Financial Sector
- 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...
- White papers 2005-11-30
