Risk diversification is one of the basic concepts in the theory of portfolio investment, which can be briefly described by the old proverb “don’t put all your eggs in one basket.”

At the beginning of the article, I will dive a little into history in order to show the importance of this concept for the entire financial market as a whole. And then, “at a glance” - with examples and pictures, I will explain the essence of the concept of diversification when forming an investment portfolio, I will clarify in which cases portfolio diversification is mandatory and how to avoid mistakes for beginners who consider diversification to be the solution to all problems when investing. We will also consider the issue related to the diversification of non-trading risks - a rather complex and “slippery” issue, in my opinion.

Markowitz portfolio theory

For the first time, scientific substantiation of the feasibility of diversifying an investment portfolio was shown in his article “Portfolio Selection” Harry Markowitz more than 50 years ago. In his article, he was the first to propose a mathematical model for the formation of an optimal investment portfolio and proposed specific methods for constructing investment portfolios in the presence of certain conditions.

In fact Markowitz was able to explain in mathematical language the validity of the formation of investment portfolios - it is obvious that by the 50s of the 20th century, everyone who was involved in investing was also involved in diversifying the risks of their investments, but they did this solely for intuitive reasons without relying on any specific calculations . And it is obvious that no one could accurately assess the effect of such “handicraft” methods of diversification.

For more than half a century of its existence, the work Markowitz has become the fundamental basis of all types of portfolio investments. Now portfolio theory Markowitz included in all training programs that somehow include financial analysis.

For his work on the theory of portfolio investment Harry Markovets in 1990 he was awarded the Nobel Prize in the category “for his work on the theory of financial economics.”

Of course, the first thing that came to my mind was to use the acquired knowledge about diversification when forming an investment portfolio from Alpari PAMM accounts.

Unfortunately, instead of investing, like a real student, I began to idealize the model and was more concerned with “beautiful” solutions to mathematical problems than thinking about the problems that arise when applying risk diversification methods in the formation of an investment portfolio.

And the problems during the diversification of PAMM accounts, in particular, and other financial assets, in general, arise as follows:

1. In the above example, both the average return and risk level (RMS) for the entire forecast investment period remain at the same level. In reality, usually over time, a financial asset may change both the average level of profitability (usually downward) and the level of risk of the asset (unfortunately, usually upward). And it is extremely difficult to predict changes in these indicators. The simplest way to assess the future risks and returns of an asset remains an assessment based on historical data on the asset’s profitability, but if the history of the asset is very short, then the assessment of profitability indicators based on a “short” history should not inspire confidence among investors. Therefore, predict risks and average returns The value of assets is only for those assets that have a fairly “long” history of their own profitability, and also during this history showed approximately the same level of profitability and level of risks.
2. As a result, it turns out that not for all assets we will be able to correctly assess the future average return and level of risks, but this does not mean at all that assets for which we cannot make a forecast should not be included in our investment portfolio. In general, such assets can also be included in a portfolio, but this must be done extremely carefully. In the example considered above, the risk of all assets included in investment portfolio No. 2 was the same. But what if there is a question about adding an asset to the investment portfolio, the risks of which are higher than the risks of the assets included in the portfolio and the expected return is the same. It is quite obvious that the question of adding such an asset to the investment portfolio depends solely on how many times the risks of this asset are higher than the risks other assets included in the portfolio, because there is a certain threshold after which it is not advisable to add a new asset with increased risks, because this will generally increase rather than reduce the risk level of the portfolio as a whole.

   From my empirical observations, I came to the conclusion that there is no point in including in an investment portfolio assets whose risks are approximately more than 2 times higher than the risks of other assets included in the portfolio if the profitability of this asset is at the level of the profitability of the investment portfolio itself. Since in this case the diversification effect will not be achieved - the risk level of the portfolio will rise, not fall - and the average return will remain at the same level.

3. Another diversification problem that usually occurs when investing in PAMM accounts is that we determine the risk level of a PAMM account based on the account's return curve, but some types of trading strategies that managers use deliberately smooth the return curve due to short-term increases account risks. Typically, this phenomenon is observed on accounts that use martingale and averaging - trading risks cannot be tracked at all from the profitability graph of such accounts, but if a drawdown suddenly occurs, then this drawdown can immediately “kill” the entire account. Therefore, when you are diversifying your investment portfolio, it is advisable to exclude your calculations, accounts using martingale and averaging (read more about these trading methods) - since the trading risks of such accounts, in principle, are extremely difficult to adequately assess.
4. It is also important that the returns of PAMM accounts included in the investment portfolio are not similar to each other, i.e. if the return graphs of some assets are as similar to each other as two peas in a pod, then only one of these accounts needs to be included in the portfolio - the one with the best return/risk ratio (although you can select based on other criteria), since diversification in this case loses every meaning. This is due to the fact that adding to the portfolio an account with a profitability identical to the profitability of an account already included in the portfolio will not affect the performance of the investment portfolio for the better.

Diversification of non-trading risks when forming an investment portfolio

Diversification of non-trading risks is a very complex and sensitive issue. Let me remind you that non-trading risks are risks associated with the likelihood of fraud and banal theft

investors' money, including as a result of the bankruptcy of your counterparties. The problem of non-trading risks is especially relevant when investing in high-risk projects such as HYIPs and Pseudo trust management. But this problem also remains relevant in the case of investing in real trust management, including PAMM systems, because no one is immune from bankruptcy - and even large financial institutions sometimes go bankrupt.

And one of the methods for reducing non-trading risks is also the diversification method. But there are also a number of problems that an investor may encounter when diversifying non-trading risks.

1. The main problem when diversifying non-trading risks is the impossibility of even approximately assessing possible risks - in the case of Forex brokers, the problem is that I don’t even remember any precedents for bankruptcy, but this does not mean that there won’t be any, but to assess the likelihood of bankruptcy of a particular company extremely difficult. For projects like HYIP and Pseudo trust management, there is much more information on scams (bankruptcies), but the problem of diversification is that the risks of bankruptcy of these companies are not constant - they are constantly growing and, as a result, you need to constantly exit some projects and invest into new ones, but it is extremely difficult to determine the moment to exit such a project. Now, looking back, I understand that the ideal moment to exit projects and it was the beginning of 2013 - the period of the appearance of products and - which offer a similar level of profitability, but at that moment they had just appeared on the “Pseudo-trust management” market. But as they say, “if only you knew where you would fall...”.

   The usual diversification approach to diversifying non-trading risks is not suitable, since you have to blindly place your eggs in possibly leaky baskets. As a result, when dealing with non-trading risks, I prefer to trust my funds to trusted financial counterparties, without experimenting with “incomprehensible” desks.

2. The second problem in diversifying non-trading risks may be related to the connectedness of various companies. I call related companies groups of companies, the bankruptcy of one of which will most likely lead to the bankruptcy of other companies in this group. Moreover, such ties may not be bilateral, but unilateral. In particular, in the eyes of investors (or more precisely, in my eyes), the company Mill Trade is unilaterally related to the company MMSIS- because it says a lot about the fact that Mill Trade runs on the engine MMSIS. From the point of view of non-trading risks, it can be said with high probability that a scam (bankruptcy) of the company MMSIS- will immediately lead to bankruptcy Mill Trade, but will bankruptcy happen? MMSIS in case of bankruptcy Mill Trade- I'm not sure, at least the probability is less.

   As a result, there is no point in distributing your investments between these companies - if my point of view is correct, then it is safer to invest in MMSIS(if you have already decided to invest in one of these companies) than in Mill Trade or both companies at once.

   This was the first example of where diversification of non-trading risks was likely to fail due to the appearance of relatedness between the companies.

   Let me give you a second example. In the recent past, the futility of diversifying investments was also clearly demonstrated due to the stereotypical connection between two companies in the minds of investors - we are talking about the same Gamma And VladimirFH. In the eyes of investors, these companies were very similar in that they worked for the same amount of time, showed approximately the same profitability, had a similar legend that investor funds were involved in trading on the Forex market, etc...

   As a result, almost every investor in the company VladimirFH was also an investor in the company Gamma. And that moment when Gamma announced its scam company's fate VladimirFH was a foregone conclusion, because a huge number of requests for withdrawal of funds were submitted to the company VladimirFH from those investors who lost in Gamma. Eventually VladimirFH as well as Gamma I didn't pay anything to anyone else.

In this article, I tried to emphasize to the reader the fact that diversification is an irreplaceable thing for an investor, because... helps reduce the risks of an investment portfolio without reducing its profitability. But at the same time, you need to approach the diversification process carefully, because Not every addition of a new asset to your investment portfolio can be called diversification, and even moreover, the addition of some assets can lead to the opposite effect - an increase in the risks of the investment portfolio.

Therefore, every time before you include a new asset in your investment portfolio, do not forget to ask yourself a few simple questions: “Do I need it?”, “How will this affect the risks of the portfolio?”, “Maybe I’m wrong in my conclusions and it’s worth it.” double check?"

Diversification is the distribution of an investment portfolio across different assets to reduce the risks associated with a fall in the value of an individual asset or the bankruptcy of an individual company.

Diversification is not an end in itself. With diversification, the investor tries to reduce risk for the same return, rather than reduce risk at the expense of return. Therefore, you should not get carried away with diversification; attempts to constantly maintain a portfolio in a diversified state can lead to a situation where an investor sells a more promising asset and buys a less promising instrument due to the fact that a promising position takes up too much of the portfolio.

Diversification can reduce the risk of investments, but cannot completely eliminate it. There are risks that are called non-diversifiable. They got their name because they cannot be avoided through diversification. An example of such a risk is the global economic crisis; during the crisis, all sectors of the economy fell into decline, issuers of fixed income instruments defaulted, and the cost of resources fell at a tremendous speed.

The essence of diversification is the formation of an investment portfolio (selection of assets for a portfolio) in such a way that, subject to certain restrictions, it satisfies a given risk/return ratio.

The investor’s task at this stage is to form the most effective portfolio, i.e. minimize portfolio risk at a given level of return or maximize return for a selected level of risk.

The reduction in investment risk as a result of building a portfolio of different assets is known as the diversification effect.

A graphical illustration of the effect of diversification, as well as its impact on various types of risk, is shown in Fig. 4.

Figure 4 – Diversification effect

The need to separate risk into unsystematic and systematic is that these types of risk behave differently when the number of assets included in the portfolio increases, namely:

if asset returns are not completely positively correlated (< 1), то диверсификация портфеля уменьшает его дисперсию (риск) без уменьшения его средней доходности;

in the case of a well-diversified portfolio, unsystematic risk can be neglected, since it tends to zero;

diversification does not eliminate systematic risk.

A method to reduce serious losses in investing is to diversify financial investments, i.e. acquisition of a certain number of different financial assets. There is a certain relationship between risk and portfolio diversification.

The overall portfolio risk consists of two parts:

diversified risk (not systematic), which can be managed;

not diversified, systematic - not manageable.

A portfolio consisting of shares of such diverse companies ensures the stability of obtaining a positive result.

A diversified portfolio is a combination of a variety of securities compiled and managed by the investor.

Using a diversified portfolio approach to investments allows you to minimize the likelihood of not receiving income.

R P =D 1 R 1 +D 2 R 2 +...+D n R n, (1)

where – R P is the rate of return of the entire portfolio,

Р 1 , Р 2 , Р n – rates of return of individual assets,

D 1, D 2, D n – shares of the corresponding assets in the portfolio.

Diversification of a securities portfolio reduces risk in investment, but does not eliminate it completely. The latter remains in the form of the so-called non-diversification risk, i.e. risk arising from the general state of the economy.

There is a portfolio theory: i.e. the theory of financial investment, within which the most profitable distribution of portfolio risk and assessment of its profitability are carried out.

A model of the relationship between systemic risk, income and profitability is developed.

The development of an investment strategy is always based on an analysis of the return on investment, the time of investment and the risks that arise. These factors in conjunction determine the effectiveness of investments in a particular stock market instrument. The adopted investment strategy determines the investment tactics: how much money and in what securities should be invested and, therefore, is always the basis of operations with securities.

The development of an investment strategy, first of all, pursues the goal of maximizing the income from investing funds based on minimizing the price of resources used for investment and the costs of the operation, and choosing an investment option that provides the highest possible return. Naturally, the effectiveness of investment varies depending on whether only own funds are used for investments or borrowed resources are also attracted.

One of the advantages of portfolio investing is the ability to select a portfolio to solve specific investment problems. The type of a portfolio is its investment characteristics based on the ratio of income and risk. At the same time, an important feature when classifying the type of portfolio is how and from what source this income was received: due to an increase in the market value or due to current payments - dividends, interest.

The portfolio type classification is given in Appendix B.

A growth portfolio is formed from shares of companies whose market value is rising. The purpose of this type of portfolio is to increase the capital value of the portfolio along with receiving dividends. However, dividend payments are made in small amounts. The growth rate of the market value of the aggregate of shares included in the portfolio is determined by the types of portfolios included in this group.

An aggressive growth portfolio aims to maximize capital growth. This type of portfolio includes shares of young, fast-growing companies. Investments in this type of portfolio are quite risky, but at the same time they can bring the highest income.

The Conservative Growth Portfolio is the least risky among the portfolios in this group. It consists mainly of shares of large, well-known companies, characterized by low but stable rates of growth in market value. The composition of the portfolio remains stable over a long period of time. Aimed at preserving capital.

The mid-growth portfolio is a combination of the investment properties of the aggressive and conservative growth portfolios. This type of portfolio includes, along with reliable securities, risky stock instruments, the composition of which is periodically updated. This type of portfolio is the most common portfolio model and is very popular among investors who are not prone to high risk.

Income portfolio. This type of portfolio is aimed at obtaining high current income - interest and dividend payments. The income portfolio is composed mainly of income stocks, characterized by moderate growth in market value and high dividends, bonds and other securities, the investment property of which is high current payments. The peculiarity of this type of portfolio is that the purpose of its creation is to obtain an appropriate level of income, the value of which would correspond to the minimum degree of risk acceptable for a conservative investor. Therefore, the objects of portfolio investment are highly reliable stock market instruments with a high ratio of consistently paid interest and market value.

A regular income portfolio is formed from highly reliable securities and brings average income with a minimum level of risk.

A portfolio of income securities consists of high-yield corporate bonds, securities that generate high income with an average level of risk.

Portfolio of growth and income. The formation of this type of portfolio is carried out in order to avoid possible losses on the stock market, both from a drop in market value and from low dividend or interest payments. One part of the financial assets included in this portfolio brings the owner an increase in capital value, and the other – income. The loss of one part can be compensated by the increase of another.

Dual-use briefcase. This portfolio includes securities that bring its owner high income with the growth of invested capital. In this case we are talking about securities of dual-use investment funds. They issue their own shares of two types, the first bring high income, the second - capital gains.

A balanced portfolio involves balancing not only income, but also the risk that accompanies transactions with securities, and therefore, in a certain proportion, consists of securities with a rapidly growing market value and high-yield securities. As a rule, this portfolio includes ordinary and preferred shares, as well as bonds.

The choice of securities for portfolio investment depends on the investor's goals and attitude to risk. For all investors, it is customary to distinguish three types of investment goals and the associated attitude to risk.

1. The investor seeks to protect his funds from inflation; To achieve his goal, he prefers investments with low returns but low risk. This type of investor is called conservative.

2. The investor is trying to make a long-term investment of capital that ensures its growth. To achieve this goal, he is ready to make risky investments, but to a limited extent, insuring himself by investing in low-yield, but also low-risk securities. This type of investor is called moderate-aggressive.

3. The investor strives for rapid growth of invested funds, is ready to make investments in risky securities, quickly change the structure of his portfolio, conducting a speculative game on security rates. This type of investor is usually called aggressive.

If we consider the types of portfolios depending on the degree of risk that the investor accepts, the results can be summarized in Table 5.

Table 5 – Relationship between investor type and portfolio type

Diversification

(Diversification)

Diversification is an investment approach aimed at reducing financial markets

Concept, basic methods and goals of diversification of production, business and financial risks in the currency, stock and commodity markets

Diversification of production Production diversification methods Goals of production diversification Diversification by market Diversification of investments Currency diversification Sources and links

Diversification is, definition

Diversification is an investment approach aimed at minimizing risks arising during production or trade, associated with the distribution of financial or production resources across different industries and areas. Wide use diversification received on the foreign exchange and stock markets as a means of minimizing losses during trade.

Diversification- This expansion of the range of products and reorientation of markets sales, development of new types of production in order to increase production efficiency, obtain economic benefits, and prevent bankruptcy. This diversification is called production diversification.

Diversification is one of the ways to reduce risk investment portfolio, which consists in the distribution of investments between the various assets included in it.

Diversification is distribution capital between different investment objects in order to reduce risk possible losses (as capital, and income from it).

Diversification is process expanding the scope of the enterprise’s activities or issuing money from a diverse range of products, which, as a rule, do not correspond to the existing production profile.

Diversification is self-organizing process increasing diversity in a given local area of ​​the wider whole; expansion of the structural features and properties or functional purpose (consumer qualities) of the produced goods or means of influencing it during its creation; enriching the content and nature of work through the growth of its internal diversity, increasing diversity in the field of culture and art, in recreational areas, etc.; expansion (extensive and intensive) of industrial profiles enterprises and associations of enterprises; spin-off of subsidiaries from the parent company or enterprises, mergers of enterprises or concern with an increase in the range, volume and types of services. The science of change and stabilization of diversity - diatropics (Yu. V. Tchaikovsky).

Diversification is a marketing decision, a strategy that means an enterprise’s entry into something new for it market, inclusion in the production program of products that are not directly related to the previous field of activity of the enterprise.

Diversification is allocation of an investment fund among securities with different risks, returns and correlations, in order to minimize unsystematic risk.

General characteristics of diversification

The financial activity of an enterprise in all its forms is associated with numerous risks, the degree of influence of which on the results of this activity increases significantly with the transition to a market economy.

Diversification is

The risks accompanying this activity are identified as a special group of financial risks that play the most significant role in the overall “risk portfolio” of the enterprise. The increasing degree of influence of financial risks on the financial performance of an enterprise is associated with the rapid variability of the economic situation in the country and the financial market, the expansion of the scope of financial relations, the emergence of new financial technologies and instruments for our economic practice, and a number of other factors.

In the system of methods for managing financial risks of an enterprise, the main role belongs to external and internal risk neutralization mechanisms.

Internal mechanisms for neutralizing financial risks are a system of methods for minimizing their negative consequences, selected and implemented within the enterprise itself.

The main objects of use of internal neutralization mechanisms are, as a rule, all types of acceptable financial risks, a significant part of the risks of the critical group, as well as uninsurable catastrophic risks if they are accepted by the enterprise due to objective necessity. In modern conditions, internal neutralization mechanisms cover the majority of the financial risks of an enterprise.

The advantage of using internal mechanisms to minimize financial risks is the high degree of alternativeness of management decisions made, which, as a rule, do not depend on other business entities. They are based on the specific conditions for the financial activities of the enterprise and its financial capabilities, and make it possible to take into account to the greatest extent the influence of internal factors on the level of financial risks in the process of minimizing their negative consequences.

Diversification is

The system of internal and external mechanisms for minimizing financial risks involves the use of the following main methods.

Risk avoidance. This direction of neutralizing financial risks is the most radical. It consists in developing such internal measures that completely eliminate a specific type of financial risk. The main such measures include:

Refusal to carry out financial transactions, the level of risk of which is extremely high. Despite the high efficiency of this measure, its use is limited, since most financial transactions are associated with the implementation of the main production and commercial activities of the enterprise, ensuring regular income income and its formation profit;

Refusal to use high amounts of borrowed capital. Decline the share of borrowed funds in economic turnover allows one to avoid one of the most significant financial risks - loss of financial stability of the enterprise. However, such risk avoidance entails decline the effect of financial leverage, i.e. the possibility of receiving an additional amount of profit on the investment;

Avoiding excessive use of working capital assets in low-liquidity forms. Increasing the level of liquidity of assets allows you to avoid the risk of insolvency of the enterprise in the future. However, such risk avoidance deprives additional income from expanding the volume of sales of products on loan and partially gives rise to new risks associated with disruption of the rhythm of the operating process due to a decrease in the size of insurance reserves of raw materials, supplies, and finished products;

Refusal to use temporarily free monetary assets in short-term financial investments. This measure avoids deposit and interest risks, but generates inflation and the risk of lost profits.

These and other forms of avoiding financial risk deprive the enterprise of additional sources of profit, and accordingly negatively affect the pace of its economic development and the efficiency of using its own capital. Therefore, in the system of internal mechanisms for neutralizing risks, their avoidance should be carried out very carefully under the following basic conditions:

Diversification is

If the rejection of one financial risk does not entail the emergence of another risk of a higher or unambiguous level;

If the level of risk is not comparable with the level of profitability of a financial transaction on the “return-risk” scale;

If financial losses for this type of risk exceed the possibility of their compensation at the expense of the enterprise’s own financial resources, etc.

Limiting risk concentration is setting a limit, i.e. spending limits, sales, loan and so on. Limitation is an important technique for reducing risk and is used by banks when issuing loans, concluding an overdraft agreement, etc. business entities use it when selling goods in loan, providing loans, determining the amount of capital investment, etc.

Diversification is

The mechanism for limiting the concentration of financial risks is usually used for those types of risks that go beyond their acceptable level, i.e. for financial transactions carried out in an area of ​​critical or catastrophic risk. This limitation is implemented by establishing appropriate internal financial standards at the enterprise in the process of developing policies for implementing various aspects of financial activities.

The system of financial standards that ensure limiting the concentration of risks may include:

The maximum size (share) of borrowed funds used in economic activities;

Diversification is

Minimum size (share) of assets in highly liquid form;

The maximum size of a commodity (commercial) or consumer loan provided to one buyer;

The maximum size of a deposit deposit placed in one bank;

Maximum size attachments funds in securities one issuer;

Maximum period diversion of funds into accounts receivable.

Diversification is

Risk hedging is used in banking, stock exchange and commercial practice to refer to various methods of insuring currency risks. In domestic literature the term “ risk hedging» began to be used in a broader sense as risk insurance against unfavorable changes in prices for any inventory items under contracts and commercial transactions involving deliveries (sales) goods in future. A contract that serves to insure against the risks of changes in exchange rates ( prices), is called " hedge", and the economic entity carrying out the risk is a "hedger".

There are two risk hedging operations: hedging upside risk and hedging downside risk.

Upside risk hedging, or purchase risk hedging, is an exchange transaction for the purchase of futures contracts or options. An upward hedge is used in cases where it is necessary to insure against a possible increase prices(courses) in the future.

Downside risk hedging, or selling risk hedging, is an exchange transaction involving the sale of a futures contract. A hedger hedging a downside risk expects to sell in the future. product, and therefore, by selling a futures contract or , he insures himself against a possible price decline in the future.

Diversification is

Depending on the types of derivatives used valuable papers The following mechanisms for hedging the risk of financial risks are distinguished: risk hedging using futures; hedging risk using options; hedging the risk using the “ ” operation.

Risk distribution. The mechanism of this direction of minimizing financial risks is based on their partial transfer (transfer) to partners in individual financial transactions. At the same time, that part of the enterprise’s financial risks is transferred to business partners for which they have more opportunities to neutralize their negative consequences and have more effective methods of internal insurance protection.

Diversification is

Diversification is the process of allocating capital among different entities attachments that are not directly related to each other. Diversification is the most reasonable and relatively less costly way to reduce the degree of financial risk.

The following main areas of risk distribution have become widespread:

Distribution of risk between participants in the investment project. In the process of such distribution, the enterprise can transfer to contractors financial risks associated with failure to fulfill the schedule of construction and installation works, the low quality of these works, theft of construction materials transferred to them and some others. For an enterprise transferring such risks, their neutralization consists in reworking works at the expense of the contractor, payment of penalties and fines and other forms of compensation for losses incurred;

Diversification is

Distribution of risk between the enterprise and suppliers raw materials and supplies. The subject of such distribution is, first of all, financial risks associated with loss (damage) of property (assets) during their transportation and loading and unloading operations;

Distribution of risk between participants in a leasing operation. Thus, with operational leasing, the enterprise transfers to the lessor the risk of obsolescence of the asset used, the risk of loss of technical productivity;

Distribution of risk between participants in a factoring (forfeiting) operation. The subject of such distribution is, first of all, the credit risk of the enterprise, which in its predominant share is transferred to the relevant financial institution - commercial bank or factoring company.

Diversification is

Self-insurance (internal insurance). The mechanism of this direction of minimizing financial risks is based on the enterprise reserving part of its financial resources, which allows it to overcome the negative financial consequences of those financial transactions for which these risks are not associated with the actions of counterparties. The main forms of this direction of neutralizing financial risks are:

Formation of a reserve (insurance) fund of the enterprise. It is created in accordance with the requirements of legislation and the charter of the enterprise. At least 5% of the amount of profit received by the enterprise in the reporting period is allocated for its formation period;

Formation of target reserve funds. An example of such a formation could be a price risk insurance fund; discount fund goods at trade enterprises; fund for repayment of bad debts, etc.;

Diversification is

Formation of a system of insurance reserves of material and financial resources for individual elements of the enterprise’s current assets. The size of the need for safety stocks for individual elements of current assets (materials, finished products, cash) is established in the process of their rationing;

The undistributed balance of profit received in the reporting period.

Risk insurance is the most important method of reducing risk.

The essence of insurance is that you are ready to give up part of your income in order to avoid risk, i.e. he is willing to pay to reduce the risk to zero.

Currently, new types of insurance have appeared, for example, title insurance, business risk insurance, etc.

Title is the legal right of ownership, which has a documentary legal side. Title insurance is insurance against events that happened in the past that may have consequences in the future. It allows buyers of real estate to expect compensation for losses incurred in the event of a court order agreements purchase and sale real estate.

Business risk is the risk of not receiving expected income from business activities. The insured amount should not exceed the insured value of the business risk, i.e. the amount of business losses that the policyholder would be expected to incur if the insured event occurred.

Other methods for minimizing risk may include the following:

Ensuring demand with counterparty for a financial transaction, an additional level of risk premium;

Receipt from counterparties certain guarantees;

Reducing the list of force majeure circumstances in contracts with counterparties;

Ensuring compensation for possible financial losses due to risks through the provided system of penalties.

Diversification in stock markets

Diversification of a securities portfolio is the formation of an investment portfolio from a certain set of securities in order to reduce possible losses in the event of a decrease in the price of one or more securities.

Also diversification securities portfolio on stock market can be used not only to protect against a possible decrease in the value of some securities included in the investment portfolio, but also to increase the overall profitability of the portfolio.

Some securities selected for the portfolio in accordance with the investment strategy may demonstrate significantly better dynamics than other securities, which in general may have a positive effect on the overall profitability of the investment portfolio.

In the process of forming an investment portfolio for stock market the following questions arise: how many securities should be in the investment portfolio and what should be the share of shares of each issuer in this portfolio?

There is no definite answer to this question, because even 2 securities are already a kind of portfolio.

Some investors, such as W. Buffett, believe that an investment portfolio should not contain more than 3-5 shares of different companies.

Diversification, in their opinion, which includes investing in weak sectors, is likely to show mediocre results, close to the market average.

Diversification is most often seen as a way to reduce risks.

At the same time, this can significantly affect the rate of expected profit on the portfolio - the more diversified the investment portfolio, the lower the overall rate of profit on the portfolio may be.

Every time you add another stock to your investment portfolio, investor thus lowering the overall average expected across the entire investment portfolio.

Thus, while diversification protects our portfolio from certain risks, it also reduces the potential total securities portfolio.

In addition, the more stocks included in an investment portfolio, the more closely you will have to monitor such a portfolio.

On the other hand, Peter Lynch, the famous manager of the Fidelity Magellan Fund, during the formation and management his investment portfolio, included about 1000 shares in his portfolio.

Profitability for such a portfolio it exceeded the market average.

Personally, I think that it is worth forming your investment portfolio from shares of 8-12 issuers; this will be quite enough to diversify risks without significantly harming the potential rate of profit for the portfolio.

If you think that you are capable of carrying out sufficiently high-quality and accurate

analysis of companies when forming an investment portfolio and you have sufficient experience and the necessary knowledge for this, then select the most promising shares of several issuers from the total in accordance with your investment strategy.

If you do not have sufficient knowledge, you can rely on the opinion of financial experts if they seem logically reasonable and justified to you, or form your investment portfolio from the most liquid securities included in.

The proportion of shares issuer in the investment portfolio

There is also no clear answer to this question.

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There are several ways to determine the share of shares when forming an investment portfolio:

Proportional to the company's market capitalization;

Proportional to the free float of the company's shares;

Based on potential returns and forecasts of future stock prices;

Compiling a portfolio of shares from equal shares.

Each of these methods has its own specific subtleties and nuances.

It is up to you to decide which method of forming the share of shares of each issuer in the investment portfolio.

When forming an investment portfolio according to the principle of equal shares, the share of shares of each issuer in the portfolio has the same weight.

For example, this could be a portfolio of shares of 10 issuers with a corresponding share of the total portfolio of 10%.

In this case, when forming a portfolio, shares are selected that satisfy certain criteria in accordance with our investment strategy, for example, with the highest dividend yield or having the maximum potential profitability.

In this case, the portfolio is also rebalanced when it is more convenient for you, for example, once a quarter, and the shares of each stock in the total portfolio value are equalized.

At the same time, changes will periodically occur in our investment portfolio - those shares that no longer satisfy our investment strategy will be excluded from the portfolio, and in their place new ones will appear with the same share in the overall portfolio that meet our criteria.

And do not forget about the principles of diversification of the investment portfolio, and why diversification is necessary.

Diversification in foreign exchange markets

Risk diversification, or in other words risk distribution, is an integral part of trading in the foreign exchange market.

As is known Forex currency market very often comes into motion due to unforeseen events and the human factor. Often a trader cannot predict in which direction prices will move in the near future. Thus, trader it is necessary to have a truly diversified portfolio of investment strategies. Trader must learn to sacrifice some of the potential maximum profit of the net asset portfolio in order to preserve capital during periods of fluctuation Forex currency market.

All traders understand that trading the foreign exchange market carries some risk. While portfolio diversification may seem extremely easy, it is not. Since most novice traders lose a significant part of their funds.

Due to the fact that all traders in the Forex market trade on a margin basis, it allows them to use enormous leverage with minimal requirements. The most commonly used leverage is 1:100. The trading leverage provided can be a powerful tool for a trader, but there are two sides to this coin. While leverage does contribute to the risk of a trader's position, it is a necessary measure to operate in the Forex market. This happens solely because the average daily movement in the market is 1%.

It is precisely because the Forex currency market is of this nature that everyone must diversify their risks within their trading accounts. Diversification can be achieved through the use of different trading strategies. As an option for diversification, the transfer of part of trading assets to control other traders. The point here is not that another trader will have a better result than you, but that diversification will be achieved this way. Regardless of how much trading experience you have, you will still face periods of ups and downs. That is why having more than one trader will slightly reduce variability trading portfolio.

Naturally, in addition to the opportunity to transfer part of the capital to another trader for management, this is not the only option for diversifying risks into the international Forex currency market. There are a huge number of strategies and trading theories, and there are also a huge number of ways to diversify the risks associated with trading on the international Forex currency market.

There are a sufficient number of different currency pairs on the international Forex currency market, each of which has its own volatility. For example, everyone's favorite pair USD - CHF is generally considered a safe haven, and, for example, GBPJPY is an unbroken stallion, galloping long distances in points, which indicates both high potential income and losses. Thus, “putting your eggs in two different baskets” - dividing the capital for trading into these two pairs, you can quite easily reduce risks if the trader prefers aggressive trading.

Technically, a diversified portfolio should consist of uncorrelated assets, i.e. unrelated (in practice, minimally related) assets. Therefore, it is quite difficult to diversify your assets in a single market. As for semantics, it would be more correct to talk about hedging risks on the international Forex market, rather than diversification.

Diversification, like any other method of money management, has a significant disadvantage - as risks decrease, potential income also decreases. Therefore, people often speak negatively about diversification, believing that it is necessary to focus on one area - if you win, you will win a lot right away, and if you lose... The thought ends here.

In practice, competent diversification involves investing in the real sector of the economy (trading goods, providing services) and financial instruments, be it securities, deposits or trading on the international Forex market. It’s not for nothing that you can increasingly hear advice to invest as much as you can afford to lose. It is purely psychologically difficult to incur huge losses, realizing that this is the main thing and without it life will turn into slavery, therefore it is strongly recommended to cover your rear by having a constant source of income outside the Forex currency market.

Diversification in commodity markets

Tradable commodities are divided into five main groups: energy - which includes crude oil, petroleum products, gas; metals - in turn divided into industrial (, zinc, aluminum, etc.) and precious (, silver,); grains - corn, soybeans, rice, oats, etc.; food products and fiber - cocoa, sugar, etc.; livestock - live cattle, pork, . Similar to stock indices, the overall performance of commodities can be tracked using commodity indices. Difference between indexes are mainly related to the weights of certain groups of goods included in the calculation of the index.

Main indexes raw materials market are: CRB - ​​the calculation takes into account 17 types of raw materials with the same weights; Dow Johns - AIG commodity index - the weight of each product is set depending on the volume of exchange transactions over the past 5 years; GSCI - weight corresponds to the share of each product in global production; RICI - reflect the share of goods in world trade. The low growth rates of the world economy and, as a consequence, the rather low rate of growth did not contribute to the high return on investment in commodities in the last two years - in fact, only soybean meal has outperformed the S&P 500 index over this period. However, in the near future, economic growth and rates of inflation will make you a desirable investment object.

The diversification strategy involves dynamic changes in the portfolio structure depending on the market market conditions. During the period of growth world economy emphasis is placed on high-growth commodities (fertilizers, industrial metals, energy resources), during periods of crisis, protective assets are used, such as gold and silver.

Advantages of the strategy:

Raw materials are a real asset that will always be in demand on the market and have a certain value;

There is a long-term positive trend in the world market towards a reduction in supply and an increase in demand for raw materials, especially from the Asian region;

Investments in commodity assets are an excellent opportunity to hedge against global inflation and depreciation of the United States dollar;

Some commodities such as gold, have historically been used as a protection against crises and inflation due to their low correlation with financial markets.

Capital management in the commodity markets of the world is the preservation and increase of capital and insurance of risks, and one of the main steps towards creating your own diversified investment capital.

Diversification of production

In economic practice, a large number of strategic alternatives for the development and growth of firms in market conditions can be proposed. One of these alternatives is diversification.

There are a large variety of definitions of diversification in the economic literature. But the difficulty is that diversification is a concept that cannot be clearly defined. Different people mean different things by it, so the important thing is to be able to recognize and interpret the concept in relation to your circumstances. Nevertheless, it is possible to give a fairly general, broad definition of diversification, but with some comments. This will provide some basis for further analysis. It is well known that from an economic point of view, diversification (from the Latin diversus - different and facer - to do) is the simultaneous development of several or many unrelated technological types of production and (or) services, expanding the range of produced trade items and (or) services.

Diversification allows firms to “stay afloat” in difficult economic conditions. market conditions due to issue of securities a wide range of products and services: losses from unprofitable trade items (temporarily, especially for new ones) are offset by profits from other types of products. Diversification is: firstly, the penetration of firms into industries that do not have a direct production connection or functional dependence on the main industry of their activity.

Secondly - in a broad sense - the spread of economic activity to new areas (expansion of the range of products, types of services provided, etc.). Diversification of production and business activity, being a tool for eliminating imbalances in reproduction and redistribution of resources, usually pursues different goals and determines the directions for restructuring corporations and the economy as a whole.

This process concerns, first of all, the transition to new technologies (developments), markets and industries to which the enterprise previously had no connection; in addition, the products (services) of the enterprise themselves must also be completely new, and, moreover, new financial ones are always needed.

Diversification is associated with the variety of applications of products manufactured by the company, and makes the efficiency of the company as a whole independent of the life cycle of an individual product, solving not so much the problem of the company’s survival as ensuring sustainable progressive growth. If a company's products have a very narrow application, then it is specialized; if they find a variety of uses, then it is diversified.

Diversified companies differ depending on the classification of their product range in relation to the technologies used and marketing features.

The classification given applies only to currently released products or services and does not affect changes to the product or service. In market conditions, classifying an enterprise as one type or another is absolute at the moment and relatively in the long term, since over time a specialized enterprise can be transformed into a diversified one and vice versa.

The ideal activity of any company, as is known, is to prevent possible failures and losses in productivity, which can be obtained from various company forecasts regarding these particular indicators. The need for diversification can be identified by comparing the desired and possible levels of productivity and the level that was achieved as a result of the company's activities. For less successful companies that do not (or cannot) plan for the future, the first sign of such a productivity gap is often a shrinking order book or idle capacity.

In any given case, a number of reasons for diversification may play an important role, but the weaker influence of other reasons may ultimately lead to a different solution to the problem. I. Ansoff believes that the main reason is the lack of compliance with the required level of productivity and efficiency.

All reasons for diversification are caused by one thing - to increase the efficiency of the enterprise not only at the moment or in the near future, but also for the long term.

There is a diversification criterion. Establishing such a criterion is recommended only for an enterprise that is truly interested in its diversification. This first essential "cover" is invaluable, since it prevents various errors and, in addition, can serve as a safety program and good control.

The process of developing an assessment and diversification plan takes time, effort and careful consideration. A conclusion that was made in one evening cannot be the basis for market research, technical research of processes and products, financial analysis, even any meeting and services of external experts to provide any information. Indeed, it is necessary only as a basis in order to decide at the very beginning whether or not this problem should be dealt with seriously. An assessment may show that all this is really good, but not for this company.

Types of production diversification

Relationship between financial position corporations and diversification of activities is quite simple, since the first determines the directions and effectiveness of the second. Thus, the areas of diversification characteristic of the initial stages of development were based on an objective basis - alternative use of waste, production facilities, trade and commercial networks and were closely related to the financial capabilities of traditional production.

The difference between the following stages of diversification was the reduction of the role of the main production; it was not limited to expansion into its own or related industries and was accompanied by a complete separation of financial interests from the interests of production. As it develops, as corporations, and diversification itself, the goals of extracting profit were achieved by expanding the possibilities for migration of resources beyond the boundaries of the industry, region, and national economy. Therefore, the two directions in the development of entrepreneurial activity can easily be explained by the evolution of the process from related diversification to unrelated or “autonomous”.

The classic definition given in the small explanatory dictionary of foreign words: “A holding company (holder company) is a company that owns a controlling stake in any other enterprises for the purpose of controlling and managing their activities.” It reveals the essence of the classical understanding of a holding (from an economic point of view) - there are shareholders who own shares, who either manage the holding structure themselves, or entrust the management of the general business to a management company.

Horizontal holdings - merger of enterprises homogeneous businesses (energy companies, sales, telecommunications, etc.). They are, in fact, branch structures managed by the parent company.

Vertical holdings- integration in one production chain (extraction of raw materials, processing, release consumer products, sales). Examples: trusts involved in the processing of agricultural products, metals, and oil refining.

Mixed holdings are the most complex example. This includes structures that are not directly connected by either trade or production relations, such as, for example, Russian banks that invest funds in some enterprises. Their main task is to invest funds somewhere and then withdraw them profitably in a timely manner. Essentially, these are investment projects.

Diversification is

As for the types of holdings, it is necessary to clarify some concepts. The classification can be slightly transformed:

Diversified holdings (mixed) - a combination of enterprises of unrelated businesses. (A typical example is when banks buy shares of various enterprises)

Sales holdings (horizontal). The main thing about them is really a single: a single system suppliers and many sales cells. If there are many cells, then a standard is needed to create a new sales point (and automation must support it). From a logistics point of view, the specificity of the holding is that the recipient is dispersed. There are always leftovers in the warehouses of sales cells and the task is to redistribute them. A unified policy for a specific type of product is possible (implemented in the form of discounts, gifts for customers, etc.). In this case, centralization of management plays an important role in developing a common politicians liquidation of leftovers.

If a holding wants to consolidate everything correctly (in terms of taxes and management accounting), then it must establish a single standard for document flow. This will allow, in particular, to conduct a unified marketing research directly in the sales process. (Particularly interesting results are obtained precisely when there are many sales points. It is possible to identify the dependence of demand on the region, location, and national specific preferences) With proper use of this aggregated marketing information it is possible to avoid leftovers and illiquid stock in warehouses. This is very significant for trading holdings. Thus, the advantages of a unified supply and sales network are that it becomes possible, firstly, to purchase a product from suppliers at lower prices (aggregate discount), and secondly, to conduct a unified sales and marketing politics and thirdly, flexibly and quickly redistribute balances in warehouses, preventing the formation of illiquid stock (cost savings).

Concern-type holdings. They are characterized by a chain of processing processes that unites them from raw materials to the finished product. This case has its own characteristics:

Enterprises transfer theirs to each other at the original cost (there is no point in profiting from each other);

It is necessary to ensure end-to-end quality management throughout the entire chain (up to the implementation of ISO 9000);

All companies concern must be balanced in terms of the level of equipment of production processes, personnel qualifications, etc.

That is, one of the most common ways to unite enterprises into diversified corporate associations is to organize a holding company. The implementation of this scheme makes it possible to clearly resolve all problems in the ownership structure and the system of relationships in the hierarchy of the corporation.

Thus, the most appropriate response to economic globalization is business diversification and the creation of diversified corporate trusts.

The main purpose of diversification is usually to ensure the survival of the organization, strengthen its competitiveness and increase profitability. Any commercial company tries to stay afloat and accordingly looks for how to achieve this. It is diversification and the search for new areas of effective activity that allows the company to accelerate its development and obtain additional income and gain new competitive advantages.

It is generally accepted that diversification of a company - be it expanding its scope of activity by opening new production facilities or acquiring subsidiaries of various profiles by the holding - is a double-edged phenomenon. And in each specific case, management, when choosing directions for development, must consider both positive and negative consequences.

There are two main types of diversification - related and unrelated.

Related diversification is a new area of ​​a company's activities that is related to existing areas of business (for example, manufacturing, marketing, supplies, or technology). There is an opinion that related diversification is preferable to unrelated diversification, because the company operates in a more known environment and takes less risk. If the accumulated skills and technologies cannot be transferred to another structural unit, and there are not so many opportunities for growth and development, it may make sense to take risks and the company should resort to unrelated diversification.

Unrelated diversification is expressed in the transition of a firm to an area other than its existing business, to new technologies (developments) and market needs. It is aimed at obtaining greater profits and minimizing business risks. With the help of this strategy, specialized firms turn into diversified conglomerate complexes, the components of which have no functional connections with each other. Unrelated diversification is more difficult than related diversification.

As an organization enters a previously unknown competitive field, it must master new technologies (developments), forms, methods of organizing work and much more that she had not encountered before. That is why the risk here is much higher. An example of such diversification is the entire post-Soviet space. During the times of perestroika and cooperatives, many residents of the country were engaged in the production of clothing, everyday products and at the same time were engaged in the supply of products and goods from abroad. In this regard, it can be considered possible to assert that almost the entire population of the post-Soviet space has, to a greater or lesser extent, experienced the delights and burdens of unrelated diversification.

In practice, both large-scale, related or unrelated diversification, and local, experimental micro-diversification are widely used. The latter is implemented in the form of the introduction of individual elements of large-scale diversification, which can later form into an independent production unit. It is local, small experimentation that can subsequently give birth to a new large-scale production.

But it should be borne in mind that diversification is a very labor-intensive and complex process that can bring not only dividends, but also problems and losses.

Most companies turn to diversification when they create financial resources beyond those needed to maintain a competitive advantage in their original business areas.

Diversification can be carried out in the following ways:

Goals:

Economic stability and financial sustainability;

Profit;

Competitiveness.

All these motives can exist separately, but they can also be combined with each other - it depends on the specific circumstances in each company, therefore the choice of the form of diversification must be well justified and carefully planned in accordance with these circumstances.

In general, there are three types of diversification opportunities.

Each product offered by a company must consist of functional components, parts and basic materials, which will subsequently form a single whole. It is usually for the benefit of the manufacturer to purchase a large proportion of these materials from outside suppliers. One of the well-known ways of diversification is vertical diversification, which is characterized by the expansion and branching of components, parts and materials. Perhaps the most striking example of vertical diversification is the Ford empire during the time of Henry Ford himself. At first glance, vertical diversification may seem inconsistent with our definition of diversification strategy. However, the respective missions that these components, parts and materials must fulfill are significantly different from the mission of the entire final product. Moreover, the technology for developing and producing these parts and materials is also likely to differ significantly from the technology for producing the final product. Thus, vertical diversification implies both the acquisition of new missions and the introduction of new products into production.

Another possible option is horizontal diversification. It can be characterized as the introduction of new products when they do not fit in any way with the existing product range, and acquire missions that are consistent with the company's know-how and its experience in technology, finance and marketing.

It is also possible, through lateral diversification, to expand beyond the industry in which the company operates. If vertical and horizontal diversification are, in fact, restraining (in the sense that they limit the sphere of interests), then lateral diversification, on the contrary, contributes to its expansion. By doing so, the company declares its intention to change its existing market structure.

Which of the following diversification options should a company choose? Part of this choice will depend on the company's reasons for diversifying. For example, with taking into account industry trends, there are steps an airline can take to achieve long-term adoption goals through diversification:

The direction promotes technological progress of the currently existing type of production;

Diversification increases the coverage of military market segments;

Direction also increases percent commercial sales in the overall sales program;

The movement stabilizes product sales in the event of an economic downturn;

The move also helps expand the company's technology base.

Some of these diversification goals relate to product characteristics and some relate to product missions. Each of the objectives is designed to improve some aspect of the balance between the overall product-market strategy and the environment. Specific goals set for certain specific situations can be grouped into three main categories: growth goals, which should help regulate the balance in conditions of favorable trends; stabilization goals designed to protect against adverse trends and predictable events, flexibility goals - all to strengthen the company's position in the event of unpredictable events. A diversification direction necessary for one purpose may be completely inappropriate for another.

The goals of production diversification directly depend on the financial condition and production capabilities of the corporation.

Problems of enterprise diversification

Assessing and planning for diversification takes time, effort and careful consideration. A thorough analysis of the enterprise is necessary in order to determine at the very beginning whether or not the enterprise should be diversified. Diversification is a very time-consuming and complex process that can lead not only to dividends, but also to problems and losses.

Diversification of production is usually characterized by a transition to new technologies (developments), markets and industries; in addition, the products (services) of the enterprise themselves are completely new, so the risk is very high.

Diversification depends on the financial condition of the company. So weak or nascent companies are unlikely to be able to conquer new markets or enter the international arena. Also, the new product of the enterprise must be competitive. Diversification requires significant financial investment.

80% of the time spent brings only 20% of the results. Based on this, before implementation, it is necessary to analyze the most favorable types of possible diversification, which promise to bring maximum income with minimal costs of time, material and human resources.

From the above we can conclude that you need to think about diversification constantly. At any moment, both the market situation and the political situation may change: the introduction or cancellation of licensing; establishment or increase of customs taxes; imposing bans on the production of certain products. All this will entail increased complexity of sales, increased competition, and the need to stop one or another type of activity.

Therefore, when starting production, you need to immediately think through new work options, types of goods, etc. So far, in practice, everything is happening exactly the opposite. Current activities often do not allow businessmen plan other areas of work. As a result, when enterprises face a sharp decline in sales, the only traditional measure is to reduce the number of workers, who have spent years and years training.

Diversification of trading risks

Often, when creating trading strategies, traders are chasing the maximum profitability of the system. However, it is more important not to increase the expected profitability, but to reduce the possible risk, which is expressed in the maximum allowable drawdown.

A simple but relatively reliable way to assess the effectiveness of a trading strategy is to determine the ratio of profitability to the maximum drawdown of the system during the period under study, the so-called recovery factor. For example, if profitability system is 45% per annum, and the maximum drawdown was 15%, the recovery factor will be equal to 3.

If we compare two systems with different values ​​of profitability and drawdown, then the system with a higher recovery factor will be better. A system that gives 30% per annum with a drawdown of 5% will be better than a system with 100% per annum and a drawdown of 40%. you can easily adjust the required value using marginal lending, but the share of risk in the system’s profitability cannot be changed; this is an integral property of the system. By increasing , we correspondingly increase the risk.

However, you can reduce the risk of your overall portfolio if you use diversification, that is, trade not just one individual strategy, but a whole set, dividing capital between systems. In this case, the drawdown of each individual system does not necessarily coincide with the drawdowns of all other systems in the set, so in the general case we can expect a smaller maximum total drawdown, at the same time, the profitability of the systems will only average out. If the systems are sufficiently independent from each other (different trading strategies are used, different instruments are traded), then a drop in equity in one of the systems will most likely be compensated by an increase in equity in some other system. The more independent trading strategies and trading instruments are, the more the overall risk is eroded.

There may even be situations when it makes sense to add a strategy that is obviously unprofitable to the portfolio. Although the overall return of the portfolio will decrease slightly, it may be that the risk will decrease even more and the overall performance of the portfolio will increase.

Theoretically, if you add more and more strategies and instruments to your portfolio, you can get as little risk as you like, and, accordingly, as much efficiency as you like. However, in practice, such an intention will inevitably encounter problems correlations between different strategies and tools.

The main directions of possible diversification are as follows:

Diversification by trading strategies;

Diversification according to the parameters of trading strategies;

Diversification by trading instruments;

Diversification by market.

Diversification by trading strategies

Each trading strategy is based on some general property of the market or the instrument being traded, which can be used to make a profit. For example, the ability of the market to form trends or the ability of prices to continue moving after breaking through a strong resistance level.

Diversification is

If there are several systems based on fundamentally different considerations, then diversifying capital between these systems can provide a significant reduction in risk. After all, in their internal essence, systems can differ greatly from each other as much as they like, and can weakly correlate with each other. If, for example, trend-following systems and systems on level breakouts are somehow similar to each other and often give similar equity, then trend-following and countertrend systems, on the contrary, will show even negative correlation. Where the trend-following system is cut, the counter-trend system will show , and accordingly, the overall risk of the portfolio will significantly decrease.

Diversification of this kind, theoretically, has no restrictions on depth and depends only on the trader’s creative abilities to create systems. Therefore, it is important to constantly continue to search for new trading strategies, since it is in this direction that the most reliable path to increasing the efficiency and profitability of trading lies.

Diversification by parameters of trading strategies

Let's take a simple trend-following strategy based on a breakout of a price channel. Its main and only parameter is the number of bars by which the maximum and minimum prices are calculated. If the maximum is updated, we consider this a signal to the beginning of a trend and buy. We hold the position until the minimum is updated, which we consider the beginning of a downward trend and turn the position into short.

Diversification is

This simple strategy gives good results on instruments prone to trend movements. Let's say, for example, that this strategy gives satisfactory results in the range of parameter changes from 10 to 100 bars. Typically, traders limit themselves to determining the parameter at which the strategy shows itself most effectively, and begin to trade one separate system with this parameter. However, if you divide your capital and simultaneously trade the same strategy, but with different parameters, you can get more sustainable results.

For example, if you take three systems, with a channel length of 10, 30 and 100 bars, different systems will work out trends of different sizes. A system with a long channel will be good at taking long trends, leaving small ones without attention. A short channel system will work well with short trends. As a result, market volatility will be processed more efficiently, the equity of all three systems will be different, which means that the risk of such a diversified portfolio will be lower.

In addition, by limiting trading to a single strategy with specific parameters, we increase the risk that it will fail simply because the market movements have developed in an unfortunate way for this system. By diversifying capital according to different parameters, you can expect results close to a certain average effectiveness of the strategy, without the risk of running into an unsuccessful combination of specific market circumstances.

If for some reason the system is strictly tied to the number of bars, and you cannot find a parameter that can be changed, you can try changing the timeframe.

As a rule, a successful strategy allows you to build profitable systems in a fairly wide range of parameters, which, however, is limited. Since transactions are not free and have their own price (broker commission, slippage, spread), it is not profitable to catch small market fluctuations, since the expected profit becomes commensurate with the transaction price. On the other hand, excessively long market fluctuations are unlikely to interest short-term players.

It turns out that diversification by parameters has its own limit of effectiveness, since the limited range of parameters means limited market movements from which a particular strategy can make a profit. And this efficiency will be higher, the better the idea underlying the trading strategy corresponds to the market behavior.

Diversification by trading instruments

It is logical to expect that the prices of different instruments will move differently. The price of shares is strongly influenced by internal corporate news and changes in the situation around the company. Of course, each company has its own situation, and it develops in a separate way. Therefore, it seems quite reasonable to divide the capital and trade the strategies available in the trader’s arsenal on various instruments.

On the other hand, there is a general economic background that causes different stocks in the same market to move more or less in unison. Events and trends in a particular economy affect sentiment in a similar way. players And investors.

In order to understand these risks and learn to protect against them, let's look at the main types of diversification.

Instrumental diversification

This is the most common type of investment protection and risk insurance. In fact, this is exactly what you and I are accustomed to understand by “diversification” itself. In a nutshell, this implies the need to have investments not in one asset, but in several different instruments. And the riskier the assets, the smaller part of the portfolio you should trust them with. For example, if a portfolio contains several PAMM accounts and private traders, it can be considered instrumentally diversified.

The risk that such a measure protects against is a partial (or even complete) fall in price of one (or several) assets. We have already observed the benefits of instrumental diversification during the depreciation of an asset such as an investment in Devlani. At that time, I had already fully realized the risks inherent in this instrument, and kept only about 10% of my portfolio in it. As a result, despite the fact that my local deposit has dropped to a meager figure, I have lost nothing but my profit over the past few months, which, by the way, has now fully recovered (and I don’t have to wait for the compensation account to be closed, like some). This happened because other assets in my portfolio continued to perform and generate profits.

But enough about the obvious - let's turn to what really few people think about.

Currency diversification

Already more interesting. Since you and I mainly deal with investing in the international Forex market - the international over-the-counter international Forex currency market, we know that the exchange rates of various countries are unstable and in constant flux. This is due to the fact that exchange rates the main states and blocs have long been no longer tied to gold reserves or even the GDP or foreign trade balance of a particular country, but are in the so-called “free floating” - their rates are determined by market mechanisms, demand and proposal for one currency or another. This, in fact, is the essence of the foreign exchange market.

We also know that the main currency quotes at which most Forex transactions are made are the rates American dollar: USD/CHF, GBPUSD, EURUSD, USDJPY, and so on. Transactions in which it appears U.S. $, there is much more on the Forex market than any other - both in volume and in quantity. Accordingly, traders open most trading accounts in this currency - although brokers, as a rule, offer a choice of both, and sometimes even more exotic currencies- a pound, for example, or even gold.

Now let's imagine that we have invested in 10 managed accounts, and all of them are denominated in US dollars. And suddenly, waking up one morning, we hear this news: USA announced technical default on its debt obligations - bonds with different maturities, treasury securities, etc. Does this seem unlikely to you now? Understand. And remember July of this year (2011) - the size external debt USA Even serious economists were seriously alarmed, and Republicans and Democrats could not agree on raising the acceptable debt ceiling, and large state-owned banks (for example, China) began to slowly get rid of dubious US debt obligations. Even rumors about such events have a powerful influence on exchange rates, not to mention the fact that the event had every chance of happening. And what do you think - the size of the US national debt has decreased since then? No matter how it is. The problem was hidden, but not solved. What is happening at this time in the Eurozone? Even those who are not interested in Forex and politics have heard about the debt problems of Greece and other PIIGS countries that could sink the entire Eurotitanic, and primarily the single euro currency. As well as the inability of the government and influential financial circles Euro Union coordinate their actions to quickly solve these problems.

But let's return to our hypothetical situation. As it turned out, our “well-diversified” portfolio of 10 PAMMs depreciated anyway - despite seemingly competent instrumental diversification... No, of course, the numbers on our balance sheet, in United States dollars, remained the same. But the value of these dollars was equal to zero or so, which means we were still left with nothing.

Solution? Currency diversification involves creating assets in different currencies- this way you will be less dependent on their fluctuations, or on the risk of a catastrophic fall of a particular currency. Even if you divide your assets equally between dollar And Euro, You will be ready for global catastrophes - since EURUSD is currently the most traded currency pair to the international Forex market, then a sudden and strong fall in one of these currencies will automatically lead to an increase in the other, as large investors, central banks, hedge funds and other market makers will hastily pump foreign exchange reserves in the other direction, and this will lead to an increase volume of purchases of the second currency, and consequently, an increase in its value. Moreover, most likely, this will happen even before the thunder actually strikes - as a rule, the people responsible for making such decisions in the above-mentioned organizations are well aware of upcoming events in advance.

Of course, in today's world neither the United States nor Euro cannot be considered stable currencies. The ideal assets for today are gold and the Swiss Franc. Unfortunately, I have not yet seen PAMMs nominated in Franke. But in gold, some accounts on Alpari have already been opened. The choice is still limited, but this type of account is gradually gaining popularity. As for , one of the most famous accounts that has been trading in euros for three years is Invincible Trader, and among ruble PAMMs I recommend the Baffetoff scalper. By the way, he also has an account in euros, albeit with an identical strategy.

Institutional diversification

The words are becoming more and more scary, but don’t worry, we’ll figure this out now.

So, you and I have successfully dealt with the fall of one or more assets, and even provided for such a global event as the fall of world currencies. We distributed our funds across 10 Alpari PAMM accounts opened in different currencies and went to bed peacefully.

The next morning, when we wake up, we are surprised to learn that the Alpari company ceases to exist due to the presence (for example) of any legal proceedings with its market makers (suppliers) liquidity), and payments on the company's obligations are postponed indefinitely.

No, of course God grant the Alpari company long life, financial stability and prosperity, but if the obligations of the US state, which has existed for more than 200 years and has a high credit rating of AA+ (until recently, by the way, an even higher “AAA”) are in doubt, What can we say about the Alpari company, which is only 15 years old, and which exists in a country with one of the highest levels of corruption in the world.

So, we learn that although everything is in order with the exchange rates in which our assets are denominated, and traders work diligently and do not merge, we cannot withdraw our investments, and it is generally unknown when we will be able to.

To insure such risks, there is so-called “institutional” diversification, or the distribution of funds between different organizations.

So, let’s back up the theory with visual material: today, PAMM accounts are opened on more than a dozen platforms, and, thank God, their number is only growing from year to year.

Sources and links

coolreferat.com - Collection of abstracts

center-yf.ru - Financial Management Center

zenvestor.ru - Blog about investing

slovari.yandex.ru - Dictionaries on Yandex

ru.wikipedia.org - Free encyclopedia

dic.academic.ru - Interpretation of words

elitarium.ru - Financial management center

bibliofond.ru - Electronic library BiblioFond

revolution.allbest.ru - A selection of abstracts

bussinesrisk.ru - Business portal

ankorinvest.ru - Portal for investors

Investor Encyclopedia. 2013 .

Synonyms:

• Dictionary of business terms - diversity, change Dictionary of Russian synonyms. diversification noun, number of synonyms: 2 change (73) ... Synonym dictionary



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Even the most successful business or enterprise cannot constantly develop and function according to only one criteria. Both large and small participants in the business sector cannot exist unchanged for a long period of time. The market, like the external environment as a whole, is constantly changing and developing. Someone leaves, someone returns, new players appear, so even the most successful enterprise needs to change the centers of economic attention, distribute funds, look for new approaches to development, and so on.

This rule has been successfully confirmed for decades by thousands of domestic and foreign companies, as well as millions of small enterprises. The concept of “diversification” has been dealing with this issue for a long time. However, most market participants neglect this concept, and today we have to find out why diversification is needed and what it is like. Let's look at what diversification is in simple words.

Diversification - what is it?

In general terms, this term means:
• redistribution of attention centers in the market;
• expansion of the range of goods or services produced;
• search for new markets;
• mastering new technologies and production methods for expansion;
• receiving additional profit;
• eliminating possible bankruptcy.

In simple words, diversification is a way of conducting economic activity in which the bet on obtaining benefits is placed on several equal centers. This also applies to sales markets. For example, when you have a certain capital, in order to benefit from it with minimal risks, you invest in shares of several successful companies at once.

Did you know? According to research by the Financial Times, in recent years the domestic resource economy has become one of the world's leading economies in terms of direct diversification of foreign investment.

With the right approach to the basic principles of the concept, diversification means getting a wide range of activities that can find their application:
• in the foreign exchange market - when investing funds in different currencies or assets;
• in real estate - investing in commercial properties of different types;
• when opening a deposit - using several banks as objects at once;
• when buying precious metals - investing simultaneously in platinum, gold, silver, etc.

At the same time, a properly diversified company is a new player in the market that is able to master new production technologies and increase profits in a fairly short period of time. After this, such an enterprise becomes dynamically developing, as a result of which it can experience more than one positive process of asset restructuring.

Benefits of Diversification

As mentioned above, when investing money in one earning tool, the risks of bankruptcy are very high. When distributing funds between several objects or areas, the chance of losing capital is reduced to almost zero. Diversification is the best way out for a company in a declining industry. It is a strategy that reduces dependence on many external sources, increases market competitiveness, improves financial efficiency and increases profits.

Did you know? Diversification emerged in the second half of the twentieth century in advanced economies. This process was preceded by the previous development of economic and industrial relations in the USA, Germany, Japan and other developed countries.

The main advantage of diversification is to obtain the maximum economic effect from all possible diversity. In other words, an enterprise that produces several types of products at once will be more profitable and competitive in the market than one that is popular.

The effect is achieved thanks to:
• multi-purpose use of all available resources;
• building an effective sales network for goods and services;
• comprehensive training and education of personnel.

Diversification (by type)

Diversification is a predominantly ramified concept; it can be used for almost any area of ​​business and entrepreneurial activity. Let's take a closer look at several of its types.

Production

Diversification of production is a strategic reorientation of an enterprise's activities towards expanding the number of types of products and expanding sales markets. Its main idea is to provide the company with stability in the market if one of the production lines becomes unprofitable, at the expense of other production lines.

Often this process can result in a unique technology, process or product. Thus, the concepts of diversification and narrow specialization are opposite in meaning. An example of this type is a music factory, which, in order to stay afloat, is mastering the production of cabinet furniture.

Products

Product diversification is a process that is expressed in an enterprise increasing the number of goods and services due to the development of new technologies and production methods, or numerous modifications of one type of product. This type is a form of economic struggle with competitors for a place in the market.

An example would be a mineral water plant that is trying to enter the sugary drinks segment.

Prices

Price diversification is primarily a strategy aimed at maximizing coverage of the number of buyers with different income levels. It provides for the establishment of different pricing policies for products in relation to the solvency of potential customers. The ultimate goal of this process is to maintain production profitability and increase sales volumes.

Prices may vary depending on:
• income level of consumers: issued in the form of discounts on popular goods for less affluent buyers or through personal pricing;
• quantity of goods or services consumed: for example, additional discounts are established for wholesale or large consumers;
• product categories: thanks to the creation of more expensive goods among the assortment by creating artificial popularity around it among certain buyers.

Business

Business diversification is the distribution of a company's capabilities among different sectors of the economy. The main essence of this process is to obtain greater profits and establish greater status for the company.

By its specificity, this concept lies in the fact that in addition to itself, the company invests in other enterprises or financial institutions, often not related to each other. This helps to more effectively develop and increase capital and minimize financial risks.

For example, a company producing automobile oils buys securities or enters the foreign exchange market. Often in business, diversification helps to overcome an economic crisis and preserve assets.

Capital

Capital diversification is the process of investing money in different industries and financial institutions, which in most cases are not related to each other. This is the easiest way to preserve capital at minimal cost, since this type does not provide for the complete distribution of available funds.

For example, to reduce the risk of losses, part of the money is distributed among several banks, and part is invested in securities. This reduces the risks several times, since it is unlikely that all banks will go bankrupt at the same time and securities will lose their solvency.

Economics

Economic diversification is one of the most complex and global examples of cash flow distribution. In a general sense, it means investing capital at a general level in such a way that all branches of the state develop proportionately. This makes it possible to create a powerful economy that has strong immunity to any crisis.

For every country, diversifying its activities is a necessary step, as the smooth growth of all types of industries stimulates the development of linkages between industries, which in turn stimulates overall economic growth, entrepreneurship and income.

Investment portfolio

Investment portfolio diversification is an economic system for managing possible risks, in which funds are distributed between different earning instruments. Its essence lies in the fact that the total risk of the investment portfolio will be tens of times less than that of an individual package. Thanks to this, it is possible to achieve long-term and stable increase in cash flow. To do this, in addition to stocks and bonds, it is recommended to include precious metals, real estate, etc. in the portfolio. All this in the future ensures stability and growth of assets.

Important! When diversifying an investment portfolio, the main thing to pay attention to are the three most important characteristics of the process: return, correlation and risk.

A well-diversified portfolio is an investment instrument that consists of many securities in such a way that the share of each type is small relative to the overall importance. The risk of such a portfolio approaches the general indicators of the occurrence of risk situations in the market, while the risk of each security is covered equally.

Risks

Risk diversification is such a distribution of investments within a portfolio in all possible ways and methods, in which the possibility of a complete loss of funds is reduced to zero.

In simple words, this means that when investing, an investor is insured against possible losses due to the redistribution of invested funds between more and less risky areas, respectively. At the same time, in theory, reducing risk should not affect the profit received.

Important! Use only uncorrelated assets when diversifying investments, this is the best way to preserve capital, because while one asset does not give a profit, another doubles it!

Types of diversification

In generally accepted scientific sources, three types of this concept are distinguished, depending on the direction, methods of its use and the production zones involved. Below we give a short description of each.

Related

Related is a diversification process in which the company’s product range increases due to new goods or services. At the same time, new products are not the main ones, but have serious technological connections with primary goods.

Related diversification can be divided into:
• vertical;
• horizontal.

Vertical diversification. This type of related diversification, in which a related product in expanded production is used either in the production chain of the main goods, or, conversely, in the production of an additional product, a purely basic one is used.

For example, huge metallurgical corporations, which own enrichment plants, produce pellets for their own purposes, and sell surplus production to competitors.

A type of related diversification in which a new type of product in an expanded production is not used for the immediate purposes of the company, but is manufactured using existing technologies.

For example, a communications equipment manufacturing company is mastering the technological process for manufacturing lighting fixtures. In this case, the new product is released either under the same brand or under a completely new name.

Unrelated

This is a type of redistribution of a company’s financial priorities, in which the development of a new direction of industry production occurs through the attraction of its own funds and capital. At the same time, the new production line is in no way connected with the old direction of the company.

The biggest advantage of such diversification of the enterprise is the development of flexibility in the market as the main quality of the company, and the development of new production methods makes it possible to avoid the risks associated with the possible unprofitability of other production lines. Using an example, it looks like this: new production is based on the technological base of the old line or creates all the conditions for the release of new products from scratch.

Combined

Combined diversification is one of the most common methods of developing an enterprise or company.

In its structure, this is a mixed type, which is put into action in several ways:

1. Filling the portfolio with assets that interact with various business areas of the company and belong to related and unrelated types. 2. Division of resources and administrative levers among individual areas that are developing based on the principles of related diversification.

Often a combination is the merging together of several companies that are opposite in the economic sphere in order to continue to exist exclusively in the direction of overall development.

Diversification strategy is a marketing action that allows companies to discover new and promising business areas that are different from their current product line. The main essence of the strategy is the redistribution of the company's funds and capital between different types of areas of activity, which significantly reduces the risks of bankruptcy of the enterprise.

In today's highly competitive market conditions, strategy becomes a powerful tool for managing all kinds of risks. If the process is started correctly, the company can avoid bankruptcy or losses even during difficult periods of economic crisis.

Types of strategy

Among the existing strategies, three main types can be distinguished: conglomerative, centered, horizontal. Below we will look at them in more detail.

Conglomerate

A conglomerate diversification strategy is a process that is aimed at ensuring that a company begins producing goods and services that are not related to its main products and their markets.

This strategy is one of the most complex of all existing today. This is due to the fact that the construction of its proper functioning depends on many surrounding factors, including the qualifications of managers and ordinary personnel, the availability of the necessary funds and seasonal economic changes in the market.

The opposite of this strategy is the concentric diversification strategy, in which a new product is produced, which, from a technological and technical point of view, is identical to those currently existing in the enterprise. Its role is to attract additional customers by offering offers to consumers from different social environments.

Centered

The centralized diversification strategy involves the company searching for new production opportunities based on existing technological processes and lines, as well as core products.

This strategy involves opening new production lines based solely on the best achievements of previous products or services. At the same time, this part of the business develops and operates separately from the main portfolio.

An example of such a strategy is the Hilton hotel chain. The company moved from premium hotels to the construction of more affordable hotels, which helped the company take a leading position in this circle.

Horizontal

The horizontal diversification strategy implies the growth of the company’s finances through the creation of a new product that requires new technologies that are not similar to previous ones. With this strategy, the company creates technologically unrelated products, for the implementation of which existing tools can be used (for example, in logistics or wholesale sales).

This strategy involves the creation of products that should be consumed by the main product or become its accompanying part.

Choosing a diversification strategy

Developing a business diversification strategy can be both the best way to solve the company’s financial problems and provide an opportunity to manage all kinds of risks in the company’s commercial activities. However, the economic growth of an enterprise is possible only with proper diversification of the company, and this is the main tool for a successful business. Therefore, next we will talk about how to choose the right strategy and do everything to ensure that the company exists only stably.

Business Analysis

This is the first place to start, since conglomerate and other types of diversification are impossible without this. The analysis must be detailed, and the head of the enterprise must clearly identify for himself the main strengths and technological and economic base of his institution and, on the basis of this, determine possible paths to business development.

It is important at this stage to answer three key questions at the end of deep monitoring:
1. What are the strengths of the production?
2. How stable does the company feel in the market?
3. How much free resources are in stock?

Finding directions

After a serious analysis of the business, at the next stage the management will have to determine for itself the right direction for diversifying the enterprise. This is a rather complex process, which is based on serious macroeconomic research. As a result, specific industries are identified in which the company will be able to realize itself most profitably in the shortest possible time. But the most common phenomenon is the expansion of production based on the personal experience, preferences and capabilities of the owner. This path has its pros and cons, but the approach is quite effective if it is backed by a wealth of serious knowledge.

This stage is no different from assessing the risks and prospects when creating a business from scratch. An assessment of the competitiveness of the production line is carried out, an analysis of all existing competitors is carried out, it is also important to determine general trends and prospects for development in the market as a whole and opportunities for future diversification of pricing policy. All this together will help to finally choose future paths to development for the enterprise.

At the end of this stage, it is important for the manager to answer the following questions:
• What are the long-term prospects for the market and economic situation?
• How to sell new products correctly?
• Does the firm really have all the resources it needs?
• Is there a plan to finance the process?
• Is there a clear work plan for the next 5 years?
• Are there better alternatives for developing or overcoming the financial crisis?

Portfolio analysis

The next step after completing the analysis of the prospects for the development of a new line of commercial activity is to assess the feasibility of a new product within the framework of the existing financial portfolio. This is not very difficult to do; there are a lot of professional matrices in the specialized literature.

At this stage, it is important to understand whether the product will exceed the space allocated for it in the portfolio. Otherwise, it will be difficult to predict the future fate of the business.

Examples of diversification

While for our economy diversification is something new and unknown, for most foreign companies such a process is something ordinary that does not require special attention. In addition, without this it is impossible to imagine the successful functioning of a business for many years.

Here are a few examples of a successful process:

1. Towards the end of 2009, hard times began for IBM. The company's profits fell sharply. Business diversification helped IBM stay afloat. Despite the fact that sales of computers and electronics fell by 7%, net profit for the year increased by 18%. This happened due to the fact that the electronics giant expanded its presence in the market in the field of hardware service and software development. 2. The concept can be viewed on a more global scale through the diversification of the US economy. This process has been evident over the past 25 years. The state has reached an even distribution of assets between the most financially profitable industries. This helped the country maintain its position in the list of leading countries in terms of living standards and financial security for citizens, as well as achieve serious success in international markets. 3. In the domestic industry, we can give an example with the company FPG "Neftekhimprom", which, in addition to the production of raw materials for the industry in the production of car tires, also began producing the finished product - this helped the owners create a full cycle of manufacturing goods and become a noticeable competitor in the domestic tire market .

Watch the video:
• How does diversification in the state economy affect your pocket?
• How to reduce the risk of your investments?

Whatever the stage of business, diversification is the best way not only to preserve hard-earned assets, but also to increase capital. Thanks to many years of experience of international companies from all over the world, this process has come to us in the most efficient form. But despite the high effect of redistributing the investment portfolio, the main thing is to remember the appropriateness of decisions and costs in relation to the resulting economic effect.

Let's take a closer look at the possibilities of reducing risk through diversification. The trend towards diversification of production and investment programs of Western companies has emerged since the 50s of the 20th century. Market transformations taking place in Ukraine also necessitate the active application of this strategy in the activities of domestic enterprises.

The main prerequisites for the use of diversification are:

The probabilistic nature of consumer demand, its individualization and dynamism;

Increasing competition and the need to increase the competitiveness of the enterprise;

The need to reduce costs and set prices for manufactured products due to economies of scale;

The need to improve the quality of products and improve the organization of production;

The need to increase market share, expand the sales network and intensify market policy;

The need to reduce risk and maximize profits;

The desire of managers to expand their powers and increase income;

The need to ensure rapid growth of labor productivity compared to the growth of personnel wages;

The need for more efficient use of available resources;

The need to improve business information support, integration of marketing research;

The need to overcome the "weaknesses" of the enterprise;

The need to ensure the adaptability and agility of the enterprise to changes occurring in the external environment.

Thus, the use of diversification has a diverse impact on the activities of enterprises. In the process of diversification, enterprises strive to produce a larger number of types of products, simultaneously invest in a larger number of assets, operate in a larger number of areas, diversify the composition of suppliers of goods, etc.

Diversification allows you to simultaneously ensure a sufficient amount of profit and reduce the level of economic risk, while the use of other methods of reducing risk is usually associated with a decrease in the profitability of enterprises. Proper application of diversification makes it possible to create fundamentally new goods and services based on the use of modern technologies, develop new areas of entrepreneurship that are not related to the basic activity of business entities, more fully use existing fixed assets and working capital, increase the level of remuneration of personnel, and, consequently, , and ensure sustainable economic development of the enterprise.

At the same time, too large-scale diversification can lead to inefficient use of enterprise resources. Ill-conceived diversification into areas where the enterprise does not have a significant influence can lead to the loss of its market position and deterioration in economic performance.

Starting at the enterprise level, diversification processes also affect the macroeconomic indicators of the state, the structure of the national economy, industry structure, export-import structure, the degree of concentration of capital within one enterprise, the degree of penetration of capital abroad, etc. .

Diversification represents a purposeful expansion of the enterprise’s activities in areas new to it and can take various forms and types.

By level of passage diversification processes are classified into:

Branded;

Intercompany;

Industry;

Intersectoral;

State;

Interstate.

According to the scale of coverage of the market (economic) space There are diversifications: one market; several markets.

From the point of view of the investment objects used There are diversifications:

Production (investing in real assets);

Financial (investing in securities).

Industrial diversification can take place in one of the following directions:

- Homogeneous diversification - occurs if an enterprise begins to produce products (provide services) similar to those already produced at the enterprise, and they differ in some insignificant parameters;

- Relatively homogeneous diversification - assumes a clearly expressed homogeneity of technical and technological characteristics of the production of these products, as well as the identity of the consumer value of these goods;

- Conditionally heterogeneous diversification - This is a type of diversification based on which there is no significant (or no) coincidence of the technical and technological characteristics of its production, but homogeneity is maintained in the relative identity of consumer value or in the relative identity (or continuation) of the production process. Relative identity is that this type of product is able to satisfy conditionally identical needs (for example, complementary goods: cars and tools for their maintenance). The main criteria of this subtype, characterized as horizontal conditionally heterogeneous diversification, are the finiteness of the products produced and the connection with the basic technological process. Vertical conditionally heterogeneous diversification characterized by the unity (full or relative) of the production process. The essence of this subtype is that, along with the base type of product, the enterprise begins to produce a pre-basic type, which in the next basic type will be used as its component, or a post-basic type of product, which involves the use of a basic type of product in its composition. For example, next to the production of motors for cars, the company begins the production of parts used in the motor or the production of the cars themselves;

- Heterogeneous diversification assumes a complete or almost complete absence of any connections between the basic and new types of products being produced.

Industrial diversification can be carried out independently or indirectly through financial diversification.

Financial diversification can be done by:

Acquisition of shares or other securities of enterprises (simple transfer of capital to another sector);

Purchasing securities or shares in banks or other financial institutions (pension funds, investment funds, etc.), as well as opening deposit accounts in them.

Forms of diversification:

Own research and development;

Acquisition of licenses;

Purchasing goods for sale;

Cooperation in the form of joint ventures;

Mergers of enterprises.

The given forms and directions of diversification are closely related to each other. At the same time, they can be combined and complement each other.

By investment activity diversification consists in distributing the efforts of developers (researchers) and capital investments for the implementation of investment projects that are not related to each other. If one of the projects turns out to be unprofitable, then the profits from successful projects will compensate for losses from unsuccessful ones, and the company will be able to continue its activities.

Development of a diversification strategy includes the following steps:

1) determination of internal and external motives and conditions for using diversification as an enterprise development strategy;

2) defining the goals of this strategy in accordance with the system of motivations and conditions for diversification;

3) selection of possible areas of diversification in accordance with the goals;

4) analysis of the internal state of the enterprise;

5) comprehensive market analysis;

6) choosing the direction of diversification from a set of possible directions according to the results of internal and external analysis.

As part of investment activities, the diversification strategy is implemented in practice using the principles of portfolio theory. This theory is associated with the construction of investment portfolios (usually in relation to securities, but the principles of portfolio theory can also be applied to real assets). The basics of portfolio theory for substantiating financial and investment decisions are given in section 13.

The essence of portfolio theory is that if an investor invests his funds in several assets whose returns do not have a close positive relationship, then the average expected return of the portfolio is equal to the sum of the average expected returns of its elements, weighted by the shares of each asset in the portfolio, and the risk of the portfolio, measured by the standard deviation, will be lower than the sum of individual values ​​of standard deviations of portfolio elements, weighted by shares of assets in the portfolio. This contains the source of the diversification effect, that is, the risk of the portfolio is below the average risk of its individual elements.

Diversification allows you to reduce only unsystematic risk. Systematic risk can be reduced through diversification because it is driven by changes in the general state of the economy.

Quantifying the risk reduction effect of diversification carried out in this sequence.

Average expected return on a securities portfolio determined by the formula:

where is the value of the average expected income for i -th asset;

The share of the investor's investment fund that invests in the acquisition i -th asset.

Average deviation of income the average for the portfolio without taking into account the correlation of cash flows is determined by the formula:

where is the value of the standard deviation according to i -mu asset

For a portfolio, it is formed from two assets, average deviation of income on average for the portfolio, taking into account the correlation of monetary streams determined by formulas;

where is the covariance of income of the corresponding pair of portfolio assets;

Correlation coefficient of the corresponding pair of portfolio assets;

Probability of occurrence of the corresponding development scenarios.

For portfolios consisting of more than two assets, the corresponding indicators are calculated using the formulas:

where is the share of funds invested in i th asset

Expected income for individual portfolio elements;

Shares of funds invested in the corresponding pairs of projects;

Standard deviations of income of corresponding pairs of projects;

The correlation coefficient between the returns of an individual pair of portfolio assets.

Covariance of returns of the corresponding pair of portfolio assets shows the extent to which fluctuations in income for these assets tend to change in the same direction.

Covariance can be positive, negative, strong or weak.

Positive covariance means that the income of two assets will tend to change in the same direction, that is, if in a particular period the income for one asset is higher than expected, then the income for the second asset will also exceed expectations.

Negative covariance means that incomes will tend to change in opposite directions.

Correlation coefficient reflects the closeness of the linear relationship between the income of the corresponding pair of assets and can take values ​​from “1” to “1”. A correlation coefficient equal to "1" characterizes an absolute positive correlation such that the returns of two assets change in exactly the same direction, while a correlation coefficient equal to "1" characterizes an absolutely negative correlation. In this case, the income of the two assets change in opposite directions. A positive correlation coefficient () shows that there is a tendency for the returns of two assets to move in the same direction, while a negative correlation coefficient () shows that there is a tendency for the returns to move in opposite directions.

The more the correlation coefficient differs from "+1" or "-1" and the closer it is to "0", the weaker the overall trend represented by the correlation coefficient, or the stronger the tendency for changes in asset income to be independent, that is, non-correlated. If the correlation coefficient is less than "1", then the risk of the portfolio is lower than the weighted average of the risks of its individual components.

The more the correlation coefficient differs from “1”, the greater the risk reduction effect, which is calculated using the formulas:

(17.14)

where is the effect of risk reduction due to diversification in absolute terms;

The effect of risk reduction due to diversification in relative terms;

Average deviation of the investment portfolio taking into account the correlation of cash flows;

The average of standard deviations of assets, weighted by the shares of funds invested in them in the total amount of investments (average deviation of income for the portfolio without taking into account the correlation of cash flows).

The value of the risk reduction effect shows how much the risk of a portfolio is below the weighted average of its individual elements. The greater the magnitude of the risk reduction effect, the more fully diversification is used in the enterprise. So, the main task of the enterprise management is to form an investment portfolio that allows you to achieve the maximum effect of limiting risk and making the most of diversification.

Example 17.3.

The expected profitability of investment projects "A" and "B" is 10 and 20%, respectively, their standard deviations are 3 and 60%. The correlation coefficient for the profitability of investment projects is 0.3.

Calculate the expected return and standard deviation of the portfolio if the investor plans to invest 40% of the funds on project “A”, and the rest on project “B”. Determine the effect of risk reduction through diversification. Draw conclusions.

solution

1. Let us determine the share of investments that are planned to be allocated to the implementation of project “B” using the formula:

where is the share of funds invested in the first project;

The share of funds invested in another project.

Then

That is, it is planned to invest 60% of the funds in project “B”.

2. Let us determine the expected return on the investment portfolio using formula (17.3).

That is, when implementing projects “A” and “B” in the form of a portfolio, the average expected return on investment will be 16%.

3. Let us determine the average deviation of the expected portfolio return using formula (17.4):

That is, when implementing projects “A” and “B” in the form of an investment portfolio, fluctuations in the individual values ​​of the expected return on investment around the average value of the expected return will average 38%.

4. Let us determine the average deviation, taking into account the correlation of profitability of projects that are planned to be included in the portfolio, using formula (17.5):

That is, when implementing projects “A” and “B” in the form of an investment portfolio, fluctuations in individual investment return values ​​around the average value, taking into account correlation, will be 37.04%.

5. Let us determine the effect of risk reduction due to diversification using formula (17.13):

So, when implementing projects “A” and “B” in the form of a portfolio, the total risk of the portfolio, measured by the standard deviation, taking into account the correlation of project returns, will be lower than the weighted average risk by 0.96%.

Diversification into real assets (projects) is characterized by a number of features that determine the magnitude of the risk reduction effect.

Firstly, such a portfolio is quite capital-intensive, low-liquidity, has a significant duration of implementation and a high level of risk, complexity and labor-intensive management. Therefore, it is necessary to carefully select each project included in the portfolio.

Secondly, the investment fund, through which projects are financed, is not infinitely divisible. Therefore, each project included in the investment portfolio must be financed in full, and not in a certain proportion. This significantly complicates the optimization of the structure of the investment fund and the application of mathematical models used for this purpose for financial investments. Since, when making financial investments, the formation of a portfolio with the desired values ​​of profitability and risk can be achieved, first of all, due to the optimization of the structure of the investment fund, for real investments such optimization is a complex task, which can be solved by combining production and financial diversification.

Thirdly, a specific characteristic of investing in real assets is the focus on obtaining a higher rate of return compared to traditional activities, which leads to a higher level of risk. This also makes it difficult to optimize the investment portfolio and requires the inclusion of projects that differ significantly according to various classification criteria. This will, to a certain extent, make it possible to balance the portfolio being formed according to accepted criteria, and will also ensure more multidirectional dynamics of expected cash flows, their less close correlation, and, consequently, a greater magnitude of the risk reduction effect.

Fourth, individual enterprises usually carry out interrelated or closely related projects. This leads to a close correlation of their cash flows and does not allow achieving a significant reduction in risk, and also confirms the need to combine real and financial investments.

It is also important to note such a feature as the difficulty of adequately assessing the effect of limiting risk through diversification. In addition to formal criteria for assessing the level of economic risk, as well as the effect of risk reduction due to diversification, there are also informal criteria. Such criteria include weakly formalized factors of the external environment of projects, in particular, the political situation in the country and in the world, trends in socio-economic development, variability of commercial factors, etc.; as well as internal environmental factors, such as the experience and creative potential of staff, relationships within the team, etc. Therefore, the initial information and the results obtained from using this method do not always reflect the real situation.

In addition, a characteristic feature of diversification in the investment activities of enterprises is the dynamic composition of the portfolio being formed. It manifests itself in the fact that the duration of the life cycle of projects included in the portfolio can differ significantly. Therefore, projects whose implementation has already been completed are removed from the portfolio. At the same time, it may include other projects that are just beginning to be implemented. Changes may also be made to the original plan for the implementation of projects in the portfolio, without exclusion from it. So, the composition of the investment portfolio being formed can be considered static only in short-term time intervals (usually no more than one year), and over longer periods it is dynamic.

The dynamism of the composition of the formed investment portfolio leads to a number of features of its management. Periodic changes in the composition of the portfolio require a more careful approach to its formation, monitoring and implementation of corrective actions. In this case, the corrective effects are reduced to a change in the composition of the portfolio as a result of the objective need to remove some projects from it, or their exclusion in the case of a non-optimal composition of the portfolio being formed, as well as the inclusion of other projects in order to more fully utilize the opportunities for optimizing the portfolio being formed. Certain difficulties are associated with the fact that it is impossible to establish a clear frequency of review of the composition of the formed portfolio and it should be carried out as necessary. The dynamic composition of the investment portfolio requires a more thorough approach to its optimization. Therefore, analysis of the possibilities for optimizing a portfolio due to the dynamism of its composition should be carried out as often as possible. At the same time, optimization opportunities may change as a result of changes in the portfolio composition.

It is also possible that, given changes occurring in the composition of the portfolio, limiting risk becomes impossible. Since projects previously included in the portfolio can be of great importance for the enterprise being implemented, in order to ensure the possibility of completing previously started projects, it may be advisable to temporarily implement a portfolio with a suboptimal composition. Subsequently, when the composition of the portfolio changes again, opportunities for optimization will be reviewed again and the magnitude of the risk-limiting effect of diversification may increase.

Since the composition of the portfolio can be constantly updated, the formed portfolio does not have a clear completion date. So, it is quite difficult to clearly establish the period for which the portfolio is formed. Accordingly, the possibilities of conducting a final assessment after the completion of the implementation of the projects included in the portfolio, as well as developing, based on its results, recommendations for more optimal use of diversification in the activities of a particular enterprise, become more complicated.

The risk limitation effect achieved through the use of diversification can be due to various factors or their combinations. The main factors that determine the magnitude of the risk reduction effect due to diversification include: the level of expected profitability and risk of planned projects; investment fund distribution structure; distribution (dispersion) of expected income according to various project development scenarios relative to the most likely expected income values; distribution of probabilities of various scenarios for the development of events during project implementation; values ​​of correlation coefficients of expected cash flows of projects; the number of planned projects, which determines the scale of diversification. At the same time, the specific characteristics of the enterprise’s investment activity determine certain features of the manifestation of these factors in the process of diversification, as well as their influence on the magnitude of the risk limitation effect.

Among the features of diversification of investment activities related to the specifics of the current stage of development of economic relations in Ukraine, it is necessary to highlight, first of all, the low investment and general economic potential of domestic enterprises. Operating in conditions of a shortage of financial resources, most enterprises cannot prove the material, technical, information base, level of qualifications of personnel in the field of investment, as well as the organization of investment activities to the appropriate level. This partly explains the fact that domestic enterprises are not yet able to carry out active investment activities. The number of simultaneously ongoing projects at enterprises is usually small. This leads to the fact that the formation of an investment portfolio and limiting its risk in practice turns out to be even more difficult. So, the possibilities of limiting economic risk through the use of diversification in the investment activities of enterprises are narrowing. Thus, as a result of the influence of these factors, diversification in the investment activities of an enterprise is associated with certain difficulties, and the formed investment portfolio is quite difficult to manage. However, careful portfolio formation in compliance with the approaches of portfolio theory and taking into account the specific features of portfolio management will make it possible to more successfully withstand risk and carry out business activities.