How does Bernard Oppetit use a diversified portfolio?

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Diversification is a relevant issue of risk control and capital management.

"Generally speaking, diversification can improve the return rate under a certain level of risk. From another perspective, for a certain expected return rate, if you do not diversify, you will bear higher risk."

"If you compare 100 positions with 10 positions, the benefit of diversification is very limited. If you diversify from 1 position to 10 positions, the benefit is very obvious, but if you diversify from 10 positions to 100 positions, there should not be much additional benefit. There is an optimal level of diversification, and exceeding this level will have a negative effect."

Bernard Oppetit believes in the benefit of diversification, but he does not advocate excessive diversification. Diversification is an effective way to improve the risk/reward ratio.

However, if the positions in the portfolio are too diversified, you may not be able to take care of them, and instead increase the possibility of loss. When adopting a diversification strategy, you must remember:

  • If individual positions bear the same market risk, they cannot provide the benefit of diversification.
  • The size of individual positions must be similar. If the size of nine positions is $100, and the size of the tenth position is $10,000. This kind of diversification does not make much sense.
  • The value volatility of individual positions should be similar. Let us consider a $10,000 three-month pound deposit futures contract and a $10,000 long-term bond position, which are incomparable.
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