DIVERSIFICATION STRATEGY FOR OPTIMIZING RISK OF PORTFOLIO

Diversification is a strategic choice that investors use to optimize risk of portfolio.It is an opportunity by which investors improve from his micro-firm into macro-firm. The investors’ aim is to make an optimal choice that leads to minimization of risk and maximization of return, but the procedures that lead to these objectives are not easily achieved. The purpose of this study is to propose diversification strategy that leads to minimization of risk and maximization of return. In addition, this study also investigates impacts of each asset in minimizing risk of portfolio, in order to have knowledge of the strength of each asset in risk reduction rate of the portfolio. The assets allocations divulge by Black Litterman model are used to estimate risk of both portfolios and assets. We explore DataStream (Yahoo finance) of Gold, Oil, Silver and Platinum spans from 1st January, 2000 to 1st September, 2016. It is observed that investing on Gold minimizes higher risk and achieve more benefits than other assets in the portfolio. In view of these facts, it means diversifying in gold acts as hedge/safe haven for investors during economic crisis.