In finance, the concept of diversification is applied to investment portfolios to mitigate risk of individual investment assets. A well-diversified portfolio will often have less overall risk than the weighted average risk of its constituent assets, and often less risk than the least risky of its constituent. Various strategies have been used to create highly diversified portfolios, yet determining the optimal balance of assets to achieve this is not straightforward.
When different assets are not uniformly uncorrelated, a weighting approach to asset allocation that accounts for their relative correlations can help to maximize the diversification. However, such methods are generally not applicable across different asset classes. In addition, these methods produce unbounded outcomes, making it difficult to compare different portfolios.
USPTO Backgrounds
USPTO Backgrounds