Research Proposal: Diversification Strategy of Number of Stocks to Maximize Returns and Minimize Risks

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Investment Diversification Strategy of Optimization of Number of Stocks to Maximize Returns and Minimize Risks

The goal of a rational investor is to create a stock portfolio of assets to generate maximum returns at the level of risks. Diversification of investment portfolios is a strategy that investors can use to reduce an investment risk by allocating their investment among various industries. The strategy that can be used to maximize returns is to invest in financial instruments that react differently to similar events. Thus, a diversification assists investors to reach their long-term goals by maximizing their returns and minimizing the risks.

Project Objective

The Objective of this project is to develop a diversification strategy by investing in a number of stocks to minimize risks and maximize returns from a $1 million hypothetical investment portfolios.

Problem Analysis

In the contemporary investment environment, many investors lose their entire investments by allocating all their funds in the same category of investment portfolios that react to the same events. For example, an investor who allocates all his investment in an airline industry is not diversifying his investment because all companies in the airline industry react to the same events. For example, an increase in the aircraft crash in a given year can make all companies in the airline industry to lose their customers making the investors lose values of their investment portfolios. This project attempts to address the problems by demonstrating the strategy of investing in a number of stocks by diversifying in a number of the asset class to minimize the risks and maximize returns. The project will use the MPT (Modern Portfolio Theory) developed by Harry Markowitz to solve the problems. (Chen, Chung, Ho. et al. 2008). The MPT is a theory of finance, which shows that investors can minimize risks and maximize expected returns by carefully selecting the proportions of different assets. According to Markowitz model, a standard investment advice is to identify and select securities that can offer the best opportunities for maximum returns and least risks. The Markowitz model clearly states… [END OF PREVIEW]

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APA Format

Diversification Strategy of Number of Stocks to Maximize Returns and Minimize Risks.  (2016, January 23).  Retrieved May 23, 2019, from https://www.essaytown.com/subjects/paper/diversification-strategy-number-stocks/9713310

MLA Format

"Diversification Strategy of Number of Stocks to Maximize Returns and Minimize Risks."  23 January 2016.  Web.  23 May 2019. <https://www.essaytown.com/subjects/paper/diversification-strategy-number-stocks/9713310>.

Chicago Format

"Diversification Strategy of Number of Stocks to Maximize Returns and Minimize Risks."  Essaytown.com.  January 23, 2016.  Accessed May 23, 2019.
https://www.essaytown.com/subjects/paper/diversification-strategy-number-stocks/9713310.