Portfolio diversification is a means of decreasing investment risk by investing in different securities of different issuers. In this way, only a part of the portfolio may decrease in value and such depreciation can be even compensated by an increase in value of the other part of the portfolio (if negatively correlated). Of course, in order to diversify a portfolio (according to some theories, a minimum number of shares for a well diversified portfolio is 15), significant resources are required, which are usually not in possession of small investors.
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- 17. What does "diversification" of a portfolio mean?
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