Diversification

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Chapters in this video

  1. 0:00 The 50 tech stocks trap
  2. 1:48 True diversification and company risk
  3. 2:59 Correlation and diversification benefit
  4. 4:45 Low correlation beats more tickers
  5. 5:12 Asset allocation versus diversification
  6. 6:29 Systematic risk and index puts
  7. 7:01 Rapid-fire exam recap

What this video covers

  • Why holding 50 technology stocks can still leave a portfolio concentrated, and why variety across sectors, industries, asset classes, and geographies matters
  • How diversification reduces non-systematic, diversifiable, company-specific risk when one company suffers an isolated event
  • How correlation works at plus 1.0, zero, and negative 1.0, including which level provides the most diversification benefit
  • Why low or negative correlation matters more than simply owning a large number of securities
  • How asset allocation differs from diversification, including the risk each tool is designed to manage
  • Why diversification cannot eliminate systematic, market-wide risk, and how index put options can hedge that exposure

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This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete SIE course in the app is free too, including adaptive practice questions and spaced-repetition flashcards.

Read the Free Lesson → free · no signup wall