Diversification and Risk | Business Finance (FINC101)

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This video gives an overview on diversification and its risk starting with the question that what may be a reason for an investor to construct portfolios. The video itself gives the answer that to minimize risk. Basically, if a portfolios’ composition of different assets and shares increases, the overall risk will decrease. Next, the video introduces principle of diversification clearing the fact that constructing a portfolio consists of a number of assets can eliminate some but not all risk.

Diversification normally reduces risk in two alternative ways- systematic or non-diversifiable & unsystematic or diversifiable. Next, the video discusses about the effect of unsystematic way of diversification showing how one can construct a portfolio to counter any downfall. Later, the video discusses on systematic diversification subsequent to a graphical representation of risk vs. number of shares. Fundamental on business finance & accounting is required to understand the content of the video.