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Syllabus D. Risk D2. Managing, Monitoring And Mitigating Risk

D2d. Diversification of Risks

Diversification of risks

Risk diversification is designed to spread risk and return.

Risk diversification involves creating a portfolio of different risks based on a number of events, which, if some turn out well others turn out badly.

Diversification can be used to manage risks in a variety of ways:

  • Having a mix of higher and lower risk investments, products, markets and geographical locations.

  • Having a mix of equity and debt finance, of short and long-term debt, and of fixed and variable interest debt