Diversification and portfolio risk reduction - an empirical study on the Stock Exchange of Singapore

Abstract

Efforts to spread investment risk often take after the form of diversification. As one increases the number of securities in a portfolio, the portfolio’s risk is reduced. A plot of the portfolio risk against portfolio size, in general, should show a downward sloping and eventually flattening curve. The issue of this study is the determination of the point at which th ecurve becomes flat, that is the number of securities needed to create a reasonably well-diversified portfolio.