Diversification & Volatility
Discover more about the financial terms, so you can take smarter decisions for your investments.
What is Diversification?
Diversification means investing in two or more financial instruments with different characteristics in terms of asset class (stocks, bonds and funds), issuers (different companies), markets (geographic areas, production sectors, countries) and currencies. Diversification can be a good strategy to reduce the risk generated by the volatility of investments.
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What is Volatility?
Volatility measures the price fluctuations of a financial instrument over a specific period: the higher the volatility of a financial instrument, the greater the probability of higher gains, but also of risk of losses.
In these cases, fluctuations can create uncertainty and fear: it is then that the investor's emotionality can gains a fundamental role. In making an investment choice, it is therefore important to evaluate the asset class in which one invests and the reference time horizon.
Discover more in the video below: