(BQ) Part 2 book "Fundamentals of investments valuation and management" has contents: Diversification and risky asset allocation; performance evaluation and risk management; futures contracts, stock options,.and other contents. | chapter 11 Diversification and Risky Asset Allocation “It is the part of a wise man not to venture all his eggs in one basket.” –Miguel de Cervantes Learning Objectives Intuitively, we all know that diversification is important for managing investment To get the most out of this chapter, diversify your study time across: efficiently diversified portfolio? Insightful answers can be gleaned from the modern 1. How to calculate expected returns and variances for a security. 2. How to calculate expected returns and variances for a portfolio. 3. The importance of portfolio diversification. 4. The efficient frontier and the importance of asset allocation. risk. But how exactly does diversification work, and how can we be sure we have an theory of diversification and asset allocation. In this chapter, we examine the role of diversification and asset allocation in investing. Most of us have a strong sense that diversification is important. After all, Don Cervantes’s advice against “putting all your eggs in one basket” has become a bit of folk wisdom that seems to have stood the test of time quite well. Even so, the importance of diversification has not always been well understood. Diversification is important because portfolios with many investments usually produce a more consistent and stable total return than portfolios with just one investment. When you own many stocks, even if some of them decline in price, others are likely to increase in price (or stay at the same price). CFA™ Exam Topics in This Chapter: 1 Discounted cash flow applications (L1, S2) 2 Statistical concepts and market returns (L1, S2) 3 Probability concepts (L1, S2) 4 Portfolio management: An overview (L1, S12) 5 Portfolio risk and return—Part I (L1, S12) 6 Basics of portfolio planning and construction (L1, S12) 7 Portfolio concepts (L2, S18) 8 Asset allocation (L3, S8) Go to for a guide that aligns your textbook with CFA readings. PART 4 You might be thinking that a portfolio with
