"different" + facere"do") - expanding the range of products and reorienting sales markets, developing new types of production in order to increase production efficiency, obtain economic benefits, and prevent bankruptcy. This diversification is called production diversification.

Values

The risk associated with owning an asset can be divided into two parts. The first component is market risk. It is also called systemic (systematic) or non-diversifiable, or non-specific. It is associated with generally significant factors affecting all assets, for example, the dynamics business cycle , war, revolution. When the economy is booming, the vast majority of assets generate higher returns. If there is a decline, then the profitability of financial instruments also falls. This risk cannot be ruled out as it is a system-wide risk. The second part is non-market, specific or diversifiable risk. It is associated with the individual characteristics of a particular asset, and not with the state of the market as a whole. For example, the shareholder of a certain enterprise is exposed to the risk of losses due to a strike at this enterprise, the incompetence of its management, etc. This risk is diversifiable because it can be reduced to almost zero through portfolio diversification. As studies by Western scientists who analyzed the dynamics of stock returns in the second half of the 60s and early 70s of the 20th century showed, a portfolio consisting of 20 assets was able to virtually completely eliminate non-market risk. In the case of international diversification, the number of shares could be limited to ten. Recent studies by J. Campbell, M. Lettau, B. Mulkail and I. Hu show that, compared with the 60s of the 20th century, in the 80s and 90s the correlation between stocks decreased and increased their volatility associated with non-market risk. This requires now a wider diversification of the portfolio in terms of stock composition to achieve the same level of risk reduction as in the 60s and 70s. The results of the research are clearly presented in Figs. 3.2 and 3.3. On fig. 3.2, the time is plotted along the horizontal axis, and the excess of the standard deviation of the portfolio return over the standard deviation of the index, which includes shares traded on the New York Stock Exchange, the American Stock Exchange and in the NASDAQ system, is plotted on the vertical axis. The top line on the chart (solid line) characterizes a portfolio of two randomly selected stocks, the top dashed line is a portfolio of 5 stocks, the middle dashed line is a portfolio of 20 stocks, and the bottom dashed line is a portfolio of 50 stocks. As you can see from the graph, the excess of the standard deviation of returns for a portfolio of 20 stocks in the 60s and 70s was less than 10%. From 1985 to 1997 it ranged from 15% to 20%. At the same time, the excess standard deviation return for a portfolio of 50 stocks from 1985 to 1997 was less than 10%. Thus, in order to get the same result from diversification for the period from 1985 to 1997 as provided by a portfolio of 20 stocks in the period from 1963 to 1985, it was necessary to combine not 20 but 50 stocks into a portfolio.

On fig. 3.3 shows the excess of the standard deviation of returns for portfolios consisting of different numbers of stocks. The number of stocks in the portfolio is plotted along the horizontal axis, and the excess of the standard deviation of the portfolio's return over the standard deviation of the index is plotted along the vertical axis. The solid line characterizes the period from 1963 to 1973, the lower dotted line - the period from 1974 to 1985 and the upper dotted line - the period from 1986 to 1997.

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A broadly diversified portfolio contains almost exclusively market risk. A poorly diversified portfolio has both market and non-market risks. Thus, an investor can only reduce his risk to the level of the market if he forms a widely diversified portfolio.

By purchasing an asset, the investor expects to be compensated for the risk he is taking. However, the risk has two parts. How will the market evaluate risk components in terms of expected returns?

As mentioned above, an investor is able to almost completely eliminate specific risk by building a widely diversified portfolio. The CAPM model assumes that the depositor is free to buy and sell assets at no additional cost. Therefore, the formation of a more diversified portfolio does not lead to an increase in its costs. Thus, at no cost, the investor can easily eliminate the specific risk. Therefore, in theory, it is assumed that non-market risk is not rewarded, since it can be easily eliminated through diversification. In this regard, if an investor does not properly diversify his portfolio, he takes unnecessary risk in terms of the benefits that he brings to society. At the same time, by acquiring, for example, a share, an investor finances production and thus benefits society. The purchase of shares is associated with non-market risk, which is unavoidable. Therefore, the investor must receive a reward adequate to this risk. Otherwise, he will not purchase this paper, and the economy will not receive the necessary financial resources. However, society (the market) will not reward him for a specific risk, since it is easily eliminated by portfolio diversification. From the point of view of financing the needs of the economy, this risk does not make sense. Thus, only systematic risk is rewarded. Therefore, the value of assets should be assessed relative to the magnitude of this particular risk. The entire risk of an asset (portfolio) is measured by indicators such as dispersion and standard deviation. To assess the market risk is another value, which is called beta.

Diversification

(Diversification)

Diversification is an investment approach aimed at reducing financial markets

The concept, main methods and goals of diversifying production, business and financial risks in the currency, stock and commodity markets

Diversification is the definition

Diversification is an investment approach aimed at minimizing the risks arising during production or trade associated with the distribution of financial or production resources across different industries and areas. Wide use diversification received in the currency and stock markets as a means of minimizing losses during trade.

Diversification- this is expanding the range of products and reorienting markets marketing, the development of new types of production in order to increase production efficiency, obtain economic benefits, and prevent bankruptcy. This diversification is called production diversification.

Diversification is one way to reduce risk investment portfolio, which consists in the distribution of investments among the various assets included in it.

Diversification is distribution capital between different investment objects in order to reduce risk possible losses (as capital, and income from it).

Diversification is process expanding the scope of the enterprise or issuing money to them of a diverse range of products, as a rule, not corresponding to the established production profile.

Diversification is self-organizing process increasing diversity in a given local area of ​​the larger whole; expansion of structural features and properties or functional purpose (consumer qualities) of the produced goods or means of influencing it in the course of its creation; enrichment of the content and nature of labor through the growth of its internal diversity, increasing diversity in the field of culture and art, in recreation (leisure) areas, etc .; expansion (extensive and intensive) of profiles of industrial enterprises and associations of enterprises; spin-off of subsidiaries from the parent company or enterprises, business associations or a concern with an increase in the range, volume and types of services. The science of changing and stabilizing diversity is diatropics (Yu. V. Tchaikovsky).

Diversification is marketing decision, a strategy that means the company enters a new for him market, inclusion in production program products that do not have a direct connection with the previous field of activity of the enterprise.

Diversification is distribution investment fund between securities with different risks, returns and correlations, in order to minimize non-systematic risk.

General characteristics of diversification

The financial activity of an enterprise in all its forms is associated with numerous risks, the degree of influence of which on the results of this activity increases significantly with the transition to a market economy.

Diversification is

The risks accompanying this activity are allocated to a special group financial risks, which play the most significant role in the overall "risk portfolio" of the enterprise. Increasing degree of influence of financial risks on results financial activities enterprises is associated with the rapid volatility of the economic situation in the country and the conjuncture financial market, expanding the sphere financial relations, the emergence of new financial technologies and tools for our business practice, and a number of other factors.

In the system of methods for managing the financial risks of an enterprise, the main role belongs to external and internal mechanisms for neutralizing risks.

Internal mechanisms for neutralizing financial risks are a system of methods for minimizing their negative consequences, selected and implemented within the enterprise itself.

The main object of using internal neutralization mechanisms are, as a rule, all types of acceptable financial risks, a significant part of the risks of the critical group, as well as uninsurable catastrophic risks, if they are accepted by the enterprise due to objective necessity. In modern conditions, the internal mechanisms of neutralization cover the predominant part of the financial risks of the enterprise.

The advantage of using internal mechanisms for minimizing financial risks is a high degree of alternativeness of managerial decisions, which, as a rule, do not depend on other business entities. They proceed from the specific conditions for the implementation of the financial activities of the enterprise and its financial capabilities, allow to take into account the influence of internal factors on the level of financial risks to the greatest extent in the process of minimizing their negative consequences.

Diversification is

The system of internal and external mechanisms for minimizing financial risks provides for the use of the following main methods.

Risk avoidance. This direction of neutralizing financial risks is the most radical. It consists in the development of such measures of an internal nature that completely exclude a specific type of financial risk. The main of these measures include:

Refusal to carry out financial transactions, the level of risk for which is extremely high. Despite the high efficiency of this measure, its use is limited, since most financial transactions are associated with the implementation of the main production and commercial activities of the enterprise, ensuring a regular income income and shaping it profit;

Refusal to use high amounts of borrowed capital. decline the share of borrowed funds in the economic turnover allows you to avoid one of the most significant financial risks - the loss of financial stability of the enterprise. However, this risk avoidance entails decline effect of financial leverage, i.e. the possibility of obtaining an additional amount of profit on the invested;

Refusal of excessive use of working capital assets in low-liquid forms. Increasing the level of liquidity of assets allows you to avoid the risk of insolvency of the enterprise in the future period. However, such risk avoidance deprives additional income from expanding the volume of sales of products on credit and partially generates new risks associated with a disruption in the rhythm of the operating process due to a decrease in the size of insurance stocks of raw materials, materials, finished products;

Refusal to use temporarily free monetary assets in short-term financial investments. This measure avoids deposit and interest risks, but creates inflationary and loss of profit risks.

These and other forms of financial risk avoidance deprive the enterprise of additional sources of profit formation, and, accordingly, negatively affect the pace of its economic development and efficiency of use of own capital. Therefore, in the system of internal mechanisms for neutralizing risks, their avoidance should be carried out very carefully under the following basic conditions:

Diversification is

If the rejection of one financial risk does not entail the emergence of another risk of a higher or unambiguous level;

If the level of risk is not comparable with the level of return financial transaction on a scale of "profitability-risk";

If financial losses for this type of risk exceed the possibility of their compensation at the expense of the enterprise's own financial resources, etc.

Limiting the concentration of risk is setting a limit, i.e. spending limits, sales, loan etc. Limiting is an important technique for reducing the degree of risk and is used by banks when issuing loans, when concluding an agreement on an overdraft, etc. business entities, it is used when selling goods in loan, granting loans, determining the amount of capital investment, etc.

Diversification is

The mechanism for limiting the concentration of financial risks is usually used for those types that go beyond their acceptable level, i.e. on financial transactions carried out in the area of ​​critical or catastrophic risk. Such limitation is implemented by establishing appropriate internal financial standards in the enterprise in the process of developing a policy for the implementation of various aspects of financial activity.

The system of financial regulations that ensure limiting the concentration of risks may include:

Limit size (specific gravity) borrowed money used in economic activity;

Diversification is

The minimum size (share) of assets in a highly liquid form;

The maximum amount of a commodity (commercial) or consumer loan provided to one buyer;

Maximum size deposit placed in one bank;

Maximum size attachments funds in securities one issuer;

Maximum period diversion of funds into accounts receivable.

Diversification is

Risk hedging is used in banking, exchange and commercial practice to refer to various insurance methods. currency risks. In domestic literature, the term " risk hedging» began to be used in a broader sense as risk insurance against adverse price changes for any inventory items under contracts and commercial transactions providing for the supply (sales) goods in future. A contract that serves to insure against the risks of changing rates ( prices) is called " hedge”, and the economic entity that carries out the risk is a “hedger”.

There are two risk hedging operations: upside hedging and downside hedging.

An up-risk hedge, or buy risk hedging, is an exchange transaction for the purchase of futures contracts or options. An upward hedge is used in cases where it is necessary to insure against a possible increase prices(courses) in the future.

Downward hedging, or selling risk hedging, is an exchange transaction with the sale of a futures contract. A hedger who hedges down risk expects to sell in the future product, and therefore, by selling a fixed-term contract or on the exchange, he insures himself against a possible price reduction in the future.

Diversification is

Depending on the types of derivatives used valuable papers The following financial risk hedging mechanisms are distinguished: risk hedging using futures; risk hedging using options; risk hedging using the “ ” operation.

Distribution of risks. The mechanism of this direction of minimizing financial risks is based on their partial transfer (transfer) to partners in individual financial transactions. At the same time, the economic partners are transferred to that part of the financial risks of the enterprise, for which they have more opportunities to neutralize their negative consequences and have more effective ways internal insurance coverage.

Diversification is

Diversification is the process of allocating capital among different entities attachments that are not directly related to each other. Diversification is the most reasonable and relatively less costly way to reduce the degree of financial risk.

The following main directions of risk distribution have become widespread:

Distribution of risk between participants investment project. In the process of such distribution, the enterprise can transfer to contractors financial risks associated with non-fulfillment of the schedule of construction and installation works, poor quality of these works, theft of transferred to them building materials and some others. For an enterprise that transfers such risks, their neutralization consists in reworking works at the expense of the contractor, payment of the amounts of forfeits and fines and other forms of compensation for losses incurred;

Diversification is

Distribution of risk between the enterprise and suppliers raw materials and supplies. The subject of such distribution are, first of all, financial risks associated with the loss (damage) of property (assets) in the process of their transportation and loading and unloading operations;

Distribution of risk between the participants of the leasing operation. So, with operational leasing, the enterprise transfers to the lessor the risk of obsolescence of the used asset, the risk of losing its technical productivity;

Distribution of risk between the participants of the factoring (forfaiting) operation. The subject of such distribution is primarily the credit risk of the enterprise, which in its predominant share is transferred to the relevant financial institution - commercial bank or factoring company.

Diversification is

Self-insurance (internal insurance). The mechanism of this direction of minimizing financial risks is based on the reservation by the enterprise of a part of financial resources, which makes it possible to overcome the negative financial consequences for those financial transactions for which these risks are not associated with the actions of counterparties. The main forms of this direction of neutralizing financial risks are:

Formation of the reserve (insurance) fund of the enterprise. It is created in accordance with the requirements of the legislation and the charter of the enterprise. At least 5% of the amount of profit received by the enterprise in the reporting period is directed to its formation. period;

Formation of target reserve funds. An example of such formation is a price risk insurance fund; markdown fund goods at trade enterprises; hopeless sinking fund accounts receivable etc.;

Diversification is

Formation of a system of insurance stocks of material and financial resources for individual elements current assets enterprises. The size of the need for insurance reserves for individual elements of current assets ( , materials, finished products, cash) is established in the process of their rationing;

Undistributed balance of profit received in the reporting period.

Risk insurance is the most important method of risk reduction.

The essence of insurance is expressed in the fact that he is ready to give up part of his income in order to avoid risk, i.e. he is willing to pay to reduce the risk to zero.

Currently, new types of insurance have appeared, for example, title insurance, business risk insurance, etc.

Title - legal ownership of, having a documentary legal side. Title insurance is insurance against events that have occurred in the past, the consequences of which may affect the future. It allows buyers real estate count on compensation for losses incurred in the event of a court order agreements purchase and sale real estate.

Entrepreneurial risk is the risk of not receiving the expected income from entrepreneurial activity. Sum insured must not exceed the insurable value of the entrepreneurial risk, i.e. the amount of business losses that the insured would be expected to incur in the event of an insured event.

Other methods for minimizing the degree of risk may include the following:

Providing demand with counterparty for a financial transaction of an additional level of risk premium;

Receipt from counterparties certain guarantees;

Reducing the list of force majeure circumstances in contracts with contractors;

Ensuring compensation for possible financial losses due to risks due to the envisaged system of penalties.

Diversification in the stock markets

Diversification of a portfolio of securities - the formation of an investment portfolio from a certain set of securities in order to reduce possible losses in the event of a decrease in the price of one or more securities.

Also diversification portfolio of securities on the stock market can be used not only to protect against a possible decrease in the value of certain securities included in the investment portfolio, but also to increase the overall return of the portfolio.

Some securities selected in the portfolio in accordance with the investment strategy may demonstrate significantly better dynamics than other securities, which in general may have a positive effect on the overall return on the investment portfolio.

In the process of forming an investment portfolio for stock market the following questions arise: how many securities should be in the investment portfolio and what should be the share of shares of each issuer in this portfolio?

An unequivocal answer to this question does not exist, because even 2 papers are already a portfolio.

Some investors, such as W. Buffett, believe that an investment portfolio should not contain more than 3-5 shares of various companies.

Diversification, in their opinion, which includes investing in weak industries, is likely to show mediocre results close to the market average.

Diversification is most often seen as a way to reduce risk.

At the same time, this can significantly affect the rate of expected profit for the portfolio - the more diversified the investment portfolio, the lower the overall rate of return for the portfolio can be.

Each time, adding another stock to the investment portfolio, investor thus lowering the overall average expected over the entire investment portfolio.

Thus, while protecting our portfolio from certain risks, diversification also reduces the potential total portfolio of securities.

In addition, the more stocks included in an investment portfolio, the more carefully such a portfolio will have to be monitored.

On the other hand, Peter Lynch, the well-known manager of the Fidelity Magellan Fund, during the formation and management his investment portfolio included about 1000 shares in his portfolio.

Yield for such a portfolio it exceeded the market average.

Personally, I think that it is worth building your investment portfolio from the shares of 8-12 issuers, this will be quite enough to diversify risks without significant harm to the potential rate of return on the portfolio.

If you believe that you are capable of sufficiently high-quality and accurate

analysis of companies when forming an investment portfolio and have sufficient experience and necessary knowledge to do this, then select the most promising shares of several issuers from the total number in accordance with your investment strategy.

If you do not have sufficient knowledge, you can rely on the opinion of financial experts if they seem logically reasonable and justified to you, or form your investment portfolio from the most liquid securities included in.

The proportion of shares issuer in the investment portfolio

There is no single answer to this question either.

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There are several ways to determine the share of shares in the formation of an investment portfolio:

In proportion to the market capitalization of the company;

In proportion to the free float of the company's shares;

Based on potential returns and forecasts of the future value of shares;

Compilation of a portfolio of shares from equal shares.

Each of these methods has its own specific subtleties and nuances.

It is up to you to decide which way to form the share of shares of each issuer in the investment portfolio.

When forming an investment portfolio on the principle of equal shares, the share of shares of each issuer in the portfolio has the same weight.

For example, it could be a stock portfolio of 10 issuers with a respective share of the total portfolio of 10%.

In this case, when forming a portfolio, stocks are selected that meet certain criteria in accordance with our investment strategy, for example, with the highest dividend yield or with the maximum potential return.

In this case, the portfolio is also balanced when it is more convenient for you, for example, once a quarter, and the shares of each stock in the total value of the portfolio are aligned.

At the same time, changes will periodically occur in our investment portfolio - those shares that no longer satisfy our investment strategy will be excluded from the portfolio, and new ones will appear in their place with the same share in the total portfolio that meet our criteria.

And do not forget about the principles of investment portfolio diversification, and why diversification is necessary.

Diversification in the foreign exchange markets

Risk diversification or, in other words, risk distribution is an integral part of trading in the foreign exchange market.

As is known Forex currency market very often comes into motion due to unforeseen events and the human factor. Often a trader cannot predict in which direction prices will move in the near future. In this way, trader you need to have a truly diversified portfolio of investment strategies. Trader must learn to sacrifice a portion of the potential maximum profit of the net asset portfolio in order to conserve capital during periods of fluctuation Forex currency market.

All traders understand that trading in the foreign exchange market carries some risk. While portfolio diversification may seem extremely easy, it is not. Since most novice traders lose a significant part of their funds.

Due to the fact that in the Forex market all traders trade on a margin basis, this allows them to use huge leverage with minimal requirements. The most commonly used leverage is 1:100. The leverage provided can serve as a powerful tool for a trader, but this medal has two sides. While leverage does contribute to a trader's position risk, it is necessary measure to work on the Forex market. This happens solely because the average daily movement in the market is 1%.

Precisely because the Forex market is of such a nature, everyone should diversify their risks within their trading accounts. Diversification can be achieved through the use of various trading strategies. As a diversification option, the transfer of a part of trading assets to control other traders. The point here is not that another trader will have a better result than you, but that diversification will be achieved in this way. Regardless of how much trading experience you have, you will still have periods of ups and downs. That is why having more than one trader will slightly reduce variability trading portfolio.

Naturally, in addition to the opportunity to give part of the capital to the management of another trader, this is not the only option for diversifying risks to the international Forex currency market. There are a huge number of strategies and trading theories, as well as a huge number of ways to diversify the risks associated with trading on the international Forex currency market.

There are a sufficient number of different currency pairs on the international Forex currency market, each of which has its own volatility. For example, everyone's favorite pair USD - CHF is generally recognized as a safe haven, and, for example, GBPJPY is an unbroken stallion galloping long distances in points, which indicates both high potential profits and losses. Thus, "laying eggs in two different baskets" - dividing the capital for trading into these two pairs, you can easily reduce the risks if the trader prefers aggressive trading.

Technically, a diversified portfolio should consist of uncorrelated assets, i.e. unrelated (in practice, minimally related) assets. Therefore, it is quite difficult to diversify your assets in the conditions of one market. With regard to semantics, it would be more correct to speak of risk hedging in the international Forex market, rather than diversification.

Diversification, like any other money management method, has a significant disadvantage - with a decrease in risks, the potential income also decreases. Therefore, people often speak negatively about diversification, believing that it is necessary to deal with one area - if you win, you will win a lot and immediately, but if you lose ... This is where the thought ends.

In practice, competent diversification involves investing in the real sector of the economy (trading in goods, providing services) and financial instruments, whether it be securities, deposits or trading on the international Forex market. Not for nothing, more and more often you can hear advice to invest as much as you can afford to lose. It is purely psychologically difficult to bear huge losses, realizing that this is the main thing and without it life will turn into slavery, therefore it is strongly recommended to cover the rear, having a constant source of income outside the Forex currency market.

Diversification in commodity markets

Traded commodities are divided into five main groups: energy - which includes crude, oil products, gas; metals - in turn subdivided into industrial (, zinc, aluminum, etc.) and precious (, silver,); cereals - corn, soybeans, rice, oats, etc.; food products and fibers - cocoa, sugar, etc.; animal husbandry - live cattle, pork, . Similarly stock indices, the overall dynamics of commodities can be tracked by commodity indices. Difference between indices are mainly related to the weights of certain groups of goods included in the calculation of the index.

Main indices raw materials markets are: CRB - ​​17 types of raw materials with the same weights are taken into account in the calculation; Dow Johns - AIG commodity index - the weight of each product is set depending on the volume exchange transactions for the last 5 years; GSCI - weight corresponds to the share of each product in world production; RICI - reflect the share of goods in world trade. The low growth rates of the world economy and, as a result, rather low growth did not contribute to the high return on investment in commodities in the past two years - in fact, only soy flour has outperformed the S&P 500 index over this period. However, in the near future, accelerating economic growth and inflation make it a desirable investment.

The diversification strategy involves a dynamic change in the structure of the portfolio depending on the market conjuncture. During the period of growth world economy the emphasis is on fast-growing commodities (fertilizers, industrial metals, energy resources), during the period of crisis, protective assets are used, such as gold and silver.

Advantages of the strategy:

A raw material is a real asset that will always be in demand in the market and have a certain value;

A long-term positive trend is emerging in the world market to reduce supply and increase demand for commodities, especially from the Asian region;

Investing in commodity assets is an excellent insurance option against the global inflation and the depreciation of the United States dollar;

Some commodities such as gold, historically used as a defense against crises and inflation due to low correlation with financial markets.

Capital management in the commodity markets of the world is the preservation and increase of capital and risk insurance, and one of the main steps towards creating your own diversified investment capital.

Production diversification

In economic practice, a large number of strategic alternatives for the development and growth of firms in market conditions can be offered. One such alternative is diversification.

There are many definitions of diversification in the economic literature. But the difficulty lies in the fact that diversification is such a concept that cannot be given an unambiguous definition. Different people mean different processes by it, so the important point is the ability to recognize and interpret this concept in relation to their circumstances. Nevertheless, it is possible to give a fairly general, broad definition of diversification, but with some remarks. This will provide a definite basis for further analysis. It is well known that from an economic point of view, diversification (from the Latin diversus - different and facer - to do) is the simultaneous development of several or many, unrelated technological types of production and (or) services, expanding the range of manufactured items of trade and (or) services.

Diversification enables firms to "keep afloat" in a difficult economic environment. conjuncture at the expense issue of securities a wide range of products and services: losses from unprofitable trade items (temporarily, especially on new ones) are covered by profits from other types of products. Diversification is: firstly, the penetration of firms into industries that do not have a direct industrial connection or functional dependence on the main industry of their activity.

Secondly - in a broad sense - the expansion of economic activity into new areas (expanding the range of products, types of services provided, etc.). Diversification of production and entrepreneurial activity, being a tool for eliminating disproportions in reproduction and redistribution of resources, usually pursues various goals and determines the direction of restructuring corporations and the economy as a whole.

This process concerns, first of all, the transition to new technologies (developments), markets and industries to which the enterprise had nothing to do before; in addition, the products (services) of the enterprise itself must also be completely new, and, moreover, new financial resources are always needed.

Diversification is associated with a variety of applications for the products manufactured by the company, and makes the efficiency of the company as a whole independent of the life cycle of an individual product, solving not so much the problem of the company's survival as ensuring sustainable progressive growth. If a company's products have a very narrow application, then it is specialized; if they find a variety of uses, then this is diversified.

Diversified companies differ depending on the classification of their product range in relation to the technologies used and sales features.

This classification applies only to currently released products or services and does not affect changes to the product or service. In market conditions, the attribution of an enterprise to one type or another is absolute at the moment and relative in the long term, since over time a specialized enterprise can be transformed into a diversified one and vice versa.

The ideal activity of any firm, as you know, is to prevent possible failures and losses in productivity, which can be obtained from various company forecasts regarding these particular indicators. The need for diversification can be identified by comparing the desired and possible levels of performance and the level that has been achieved as a result of the company's activities. For less successful companies that do not (or cannot) plan for the future, the first sign of such a performance gap is often a shrinking backlog or idle capacity.

In each case, a number of reasons for diversification may play an important role, but the weaker influence of other reasons may ultimately lead to a different solution to the problem. I. Ansoff believes that the main reason is the discrepancy between the proper level of productivity and efficiency.

All the reasons for diversification are caused by one thing - to increase the efficiency of the enterprise, not only at the moment or in the near future, but also in the long term.

There is a diversification criterion. The establishment of such a criterion is recommended only for an enterprise that is really interested in its diversification. This first essential "cover" is invaluable, as it prevents various errors and, in addition, can serve as a program for security and good control.

The process of developing a diversification assessment and plan takes time, effort, and careful study. A conclusion that was made in one evening cannot be the basis for market research, technical research of processes and products, financial analysis, even any meeting and the services of external experts to provide any information. Indeed, it is necessary only as a basis in order to decide at the very beginning whether or not to deal with this problem seriously. The assessment may show that all this is really good, but not for this company.

Types of production diversification

Connection between financial position corporations and diversification of activities is quite simple, since the first determines the direction and effectiveness of the second. Thus, the directions of diversification, characteristic of the initial stages of development, relied on an objective basis - the alternative use of waste, production facilities, trade and commercial network, and were closely related to the financial capabilities of traditional production.

The difference between the next stages of diversification was to reduce the role of the main production, was not limited to expansion into their own or related industries and was accompanied by a complete separation of financial interests from the interests of production. As it develops, corporations, and diversification itself, the goals of extracting profit were achieved by expanding the possibilities of migration of resources outside the industry, region, national economy. Therefore, two directions in the development of entrepreneurial activity can be easily explained by the evolution of the process from related diversification to unrelated or "autonomous".

The classic definition given in the small explanatory dictionary of foreign words: "A holding company (a holder company) is a company that owns a controlling stake in any other enterprises in order to control and manage their activities." It reveals the essence of the classical understanding of the holding (from an economic point of view) - there are shareholders who own shares, who either manage the holding structure themselves, or entrust the management of the common business to the management company.

Horizontal holdings - association of enterprises homogeneous businesses (energy companies, sales, telecommunications, etc.). They are, in fact, branch structures managed by the head (parent) enterprise.

vertical holdings- association in one production chain (extraction of raw materials, processing, release consumer products, marketing). Examples: trusts involved in the processing of agricultural products, metals, oil refining.

Mixed holdings are the most complex example. This includes structures that are not directly related to either trade or production relations, such as, for example, Russian banks investing in some enterprises. Their main task is to invest funds somewhere and then withdraw them with profit in a timely manner. Essentially, these are investment projects.

Diversification is

As for the types of holdings, it is necessary to specify some concepts. The classification can be modified in several ways:

Diversified holdings (mixed) - association of enterprises of unrelated businesses. (A typical example is when banks buy up shares of different enterprises)

Sales holdings (horizontal). They really have the main thing - a single: a single system suppliers and many sales cells. If there are many cells, then a standard for creating a new sales point is needed (and automation must support it). From the point of view of logistics, the specifics of the holding is that the recipient is dispersed. There are always leftovers in the warehouses of marketing cells and the task is to redistribute them. A single policy for a specific type of product is possible (implemented in the form of discounts, gifts for customers, etc.). In this case, the centralization of management plays an important role in the development of a common politicians elimination of residues.

If the holding wants to consolidate everything correctly (in terms of taxes and management accounting), then a single standard for document flow should be established in it. This will allow, in particular, to conduct a single marketing research directly in the sales process. (Particularly interesting results are obtained precisely when there are a lot of sales outlets. You can identify the dependence of demand on the region, location, national specific preferences) With proper use of this aggregated marketing information it is possible to avoid residues and illiquid assets in warehouses. This is very important for trading holdings. Thus, the advantages of a single supply and marketing network are that it becomes possible, firstly, to purchase a product from suppliers at lower prices (cumulative discount), and secondly, to conduct a single sales and marketing politics and, thirdly, to flexibly and promptly redistribute balances in warehouses, preventing the formation of illiquid assets (cost savings).

Group holdings. They are characterized by a chain of processing uniting them from raw materials to the finished product. In this case, there are some peculiarities:

Enterprises transfer theirs to each other at the original cost (there is no point in cashing in on each other);

Throughout the chain, it is necessary to ensure end-to-end quality management (up to the introduction of ISO 9000);

All enterprises concern must be balanced in terms of the level of equipment of production processes, qualifications of personnel, etc.

That is, one of the most common ways to combine enterprises into diversified corporate associations is to organize a holding. The implementation of this scheme allows you to clearly resolve all problems in the ownership structure and the system of relationships in the corporate hierarchy.

Thus, the most appropriate response to the globalization of the economy is business diversification and the creation of diversified corporate trusts.

The main goal of diversification is usually to ensure the survival of the organization, strengthening its competitiveness and increasing profitability. Any commercial company is trying to stay "afloat" and, accordingly, is looking for how to achieve this. It is diversification, the search for new areas of effective activity that allows the company to accelerate its development, obtain additional income and gain new competitive advantages.

It is generally accepted that the diversification of the company - whether it is the expansion of the scope of activities by opening new production facilities or the acquisition by the holding of subsidiaries of various profiles - is a double-edged phenomenon. And in each case, the management, choosing the direction of development, should consider both positive and negative consequences.

There are two main types of diversification - related and unrelated.

Related diversification is a new area of ​​activity for a company that is related to existing areas of business (such as manufacturing, marketing, procurement, or technology). There is an opinion that related diversification is preferable to unrelated diversification, because the company operates in a more familiar environment and takes less risk. If the accumulated skills and technologies cannot be transferred to another structural unit, and there are not so many opportunities for growth and development, it may make sense to take risks and the company should resort to unrelated diversification.

Unrelated diversification is expressed in the movement of the firm into an area other than the existing business, to new technologies (developments) and market needs. It is aimed at obtaining greater profit and minimizing entrepreneurial risks. With the help of this strategy, specialized firms are transformed into diversified complexes-conglomerates, the constituent parts of which do not have functional links with each other. Unrelated diversification is more difficult than related diversification.

As the organization enters a hitherto unknown competitive field, it must master new technologies (developments), forms, methods of organizing work and much more, which she had not encountered before. That is why the risk is much higher here. The entire post-Soviet space can serve as an example of such diversification. During the times of perestroika and cooperatives, many residents of the country were engaged in the production of clothing, everyday products and at the same time were engaged in the supply of products and goods from abroad. In this regard, it can be considered possible to assert that almost the entire population of the post-Soviet space, to a greater or lesser extent, has experienced the charms and hardships of unrelated diversification.

In practice, both large-scale, related or unrelated diversification and local, experimental microdiversification are widely used. The latter is implemented in the form of the introduction of individual elements of large-scale diversification, which can later be formed into an independent production unit. It is local, small experimentation that can subsequently give life to a new large-scale production.

But it should be borne in mind that diversification is a very time-consuming and complex process that can bring not only dividends, but also problems and losses.

Most companies turn to diversification when they generate more financial resources than are needed to maintain a competitive edge in their original business areas.

Diversification can be done in the following ways:

Goals:

Economic stability and financial stability;

Profit;

Competitiveness.

All these motives can exist separately, but they can also be combined with each other - it depends on the specific circumstances in each company, therefore, the choice of the form of diversification should be well justified and carefully planned in accordance with these circumstances.

In general, there are three types of diversification opportunities.

Each product offered by the company must consist of functional components, parts and basic materials, which will subsequently form a single whole. Usually, in the interests of the manufacturer, a large proportion of these materials are purchased from external suppliers. One of the well-known ways of diversification is vertical diversification, which is characterized by the expansion and branching of components, parts and materials. Perhaps the most striking example of vertical diversification is the Ford empire during the time of Henry Ford himself. At first glance, vertical diversification may seem inconsistent with our definition of a diversification strategy. However, the respective missions that these components, parts, and materials must fulfill are fundamentally different from the mission of the entire end product. Moreover, the technology for the development and production of these parts and materials is also likely to differ significantly from the technology for the production of the final product. Thus, vertical diversification implies both the acquisition of new missions and the introduction of new products into production.

Another possible variant- horizontal diversification. It can be characterized as introducing new products when they do not fit in any way with the existing product range, and acquiring missions that match the company's know-how and experience in technology, finance and marketing.

It is also possible, through lateral diversification, to go beyond the industry in which the company operates. If vertical and horizontal diversification, in fact, are constraining (in the sense that they limit the sphere of interest), then lateral diversification, on the contrary, contributes to its expansion. By doing so, the company declares its intention to change its existing market structure.

Which of the following diversification options should the company choose? In part, this choice will depend on the reasons that prompt the company to diversify. For example, with taking into account industry trends, there are several steps an airline can take to achieve its long-term implementation goals through diversification:

The direction contributes to the technological progress of the currently existing type of production;

Diversification increases coverage of segments of "military" markets;

Direction also increases percent commercial sales in the general implementation program;

The movement stabilizes the sale of products in the event of an economic downturn;

The move also helps expand the company's technology base.

Some of these diversification goals relate to product features and some to product missions. Each of the goals is intended to improve some aspect of the balance between the overall product-market strategy and the environment. Specific targets set for certain specific situations can be grouped into three main categories: growth targets, which should help to balance the balance in the face of favorable trends; stabilization goals designed to protect against unfavorable trends and predictable phenomena, flexibility goals - all to strengthen the company's position in the event of unpredictable events. The diversification direction necessary for one of the goals may be completely unsuitable for another.

The goals of production diversification directly depend on the financial condition and production capabilities of the corporation.

Problems of enterprise diversification

Assessing and planning for diversification takes time, effort, and careful study. A thorough analysis of the enterprise is necessary in order to determine at the outset whether or not the enterprise should be diversified. Diversification is a very time-consuming and complex process that can lead not only to dividends, but also to problems and losses.

Diversification of production is usually characterized by the transition to new technologies (developments), markets and industries, in addition, the products (services) of the enterprise itself are completely new, so the risk is very high.

Diversification depends on the financial condition of the company. So weak or emerging companies are unlikely to conquer new markets or enter the international arena. Also, the new product of the enterprise must be competitive. Diversification requires significant financial investment.

80% of the time spent brings only 20% of the results. Based on this, before the start of implementation, it is necessary to analyze the most favorable types of possible diversification, which promise to bring the maximum income at the minimum cost of time, material and human resources.

From the foregoing, we can conclude that you need to think about diversification constantly. Both the market situation and the political situation can change at any moment: introduction or cancellation of licensing; establishment or increase of customs taxes; imposing bans on the production of certain products. All this will entail the complication of marketing, increased competition, the need to terminate one or another type of activity.

Therefore, when starting production, you need to immediately think over new options for work, types of goods, etc. So far, in practice, everything happens exactly the opposite. Current activities often do not allow businessmen plan other areas of work. As a result, when enterprises are faced with a sharp decline in sales, the only traditional measure is to reduce the number of employees who have spent years and years on training.

Diversification of trading risks

Often, when creating trading strategies, traders are chasing the maximum profitability of the system. However, it is more important not to increase the value of expected profitability, but to reduce the possible risk, which is expressed in the maximum allowable drawdown.

A simple but relatively reliable way to evaluate the effectiveness of a trading strategy is to determine the ratio of profitability to the maximum drawdown of the system over the period under study, the so-called recovery factor. For example, if profitability system 45% per annum, and the maximum drawdown is 15%, the recovery factor will be 3.

If we compare two systems with different values ​​of returns and drawdowns, then the system with a higher recovery factor will be better. A system that gives 30% per annum with a drawdown of 5% will be better than a system with 100% per annum and a drawdown of 40%. can be easily adjusted to the desired value by using margin lending, but the share of risk in the profitability of the system cannot be changed, this is an integral property of the system. By increasing , we increase the risk accordingly.

However, you can reduce the risk for the portfolio as a whole if you apply diversification, that is, trade not one separate strategy, but a whole set, dividing the capital between systems. In this case, the drawdown of each individual system does not necessarily coincide with the drawdowns of all other systems in the set, so in the general case we can expect a smaller maximum cumulative drawdown, while at the same time, the profitability of the systems will only be averaged. If the systems are sufficiently independent from each other (different trading strategies are used, different instruments are traded), then the drop in equity in one of the systems will most likely be compensated by an increase in equity in some other system. The more independent trading strategies and trading tools, the more the overall risk is eroded.

There are even situations when it makes sense to add a deliberately unprofitable strategy to the portfolio. Although the overall portfolio performance will decrease somewhat, it may turn out that the risk will decrease even more, and the overall performance of the portfolio will increase.

Theoretically, if you add more and more strategies and instruments to your portfolio, you can get an arbitrarily small risk, and, accordingly, an arbitrarily large efficiency. However, in practice, such an intention will inevitably run into the problem correlations between different strategies and tools.

The main areas of possible diversification are as follows:

Diversification by trading strategies;

Diversification by parameters of trading strategies;

Diversification by trading instruments;

Market diversification.

Diversification by trading strategies

Each trading strategy is based on some common property of the market or traded instrument, which can be used to make a profit. For example, the property of the market to form trends or the property of the price to continue moving after the breakdown of a strong resistance level.

Diversification is

If there are several systems based on fundamentally different considerations, then diversifying capital between these systems can provide a significant reduction in risk. Indeed, according to the internal essence of the system, they can arbitrarily differ from each other, and arbitrarily weakly correlate with each other. If, for example, trend-following systems and systems on level breakouts are somehow similar to each other and often give similar equity, then trend-following and counter-trend systems, on the contrary, will even show negative correlation. Where the trend-following system will be sawn, the counter-trend one will show, respectively, the overall risk of the portfolio will decrease significantly.

Diversification of this kind, theoretically, has no limits on depth and depends only on the creative abilities of the trader to create systems. Therefore, it is important to constantly continue to work on finding new trading strategies, since it is in this direction that the most reliable way to increase the efficiency and profitability of trading lies.

Diversification by parameters of trading strategies

Let's take a simple trend-following strategy based on the breakdown of the price channel. Its main and only parameter is the number of bars for which the high and low prices are calculated. If the maximum is updated, we consider this a signal for the beginning of the trend and buy. We hold the position until the minimum is updated, which we consider the beginning of a downtrend and turn the position into shorts.

Diversification is

This simple strategy gives good results on instruments prone to trending movements. Suppose, for example, that this strategy gives satisfactory results in the range of parameter changes from 10 to 100 bars. Usually, traders limit themselves to determining the parameter at which the strategy performs most effectively, and begin to trade one separate system with this parameter. However, if you split your capital and trade the same strategy at the same time, but with different parameters, you can get more stable results.

For example, if we take three systems with a channel length of 10, 30 and 100 bars, different systems will work out trends of different sizes. A system with a long channel will take long trends well, leaving small ones unattended. A short channel system will work well with short trends. As a result, the market volatility will be processed more efficiently, the equity of all three systems will be different, which means that the risk of such a diversified portfolio will be lower.

In addition, by limiting trading to a single strategy with specific parameters, we increase the risk that it will fail simply because the market moves in an unfortunate way for this system. By diversifying capital according to different parameters, one can expect results close to a certain average efficiency of the strategy, without the risk of running into an unfortunate combination of specific market circumstances.

If, for some reason, the system is strictly tied to the number of bars, and you cannot find a parameter that can be changed, you can try changing the timeframe.

As a rule, a successful strategy allows you to build profitable systems in a fairly wide range of parameters, which, however, is limited. Since transactions are not free and have their own price (broker commission, slippage, spread), it is unprofitable to catch small market fluctuations, since the expected profit becomes commensurate with the price of the transaction. On the other hand, too long market fluctuations are unlikely to be of interest to short-term players.

It turns out that diversification by parameters has its efficiency limit, since the limited area of ​​​​parameters means the limited market movements from which one or another particular strategy can profit. And this efficiency will be the higher, the better the idea underlying the trading strategy corresponds to the behavior of the market.

Diversification by trading instruments

It is logical to expect that the prices of different instruments will move differently. The price of shares is strongly influenced by internal corporate news, changes in the situation around the company. Of course, each company has its own situation, and it develops in a separate way. Therefore, it seems quite reasonable to divide the capital and trade the strategies available in the trader's arsenal on various instruments.

On the other hand, there is a general economic background that causes different stocks in the same market to move more or less in sync. Events and trends in a particular economy similarly affect sentiment players and investors.

In order to understand these risks and learn how to defend against them, let's look at the main types of diversification.

Instrumental diversification

This is the most common type of investment protection and risk insurance. In fact, this is exactly what you and I used to understand by proper "diversification". In a nutshell, this implies the need to have investments not in one asset, but in several different instruments. And the more risky assets, the smaller part of the portfolio should be trusted to them. For example, if a portfolio contains several PAMM accounts and individual traders, it can be considered instrumentally diversified.

The risk that such a measure protects against is a partial (or even complete) drop in price of one (or several) assets. We have already observed the advantages of instrumental diversification during the depreciation of such an asset as investments in Devlani. At that time, I was already fully aware of the risks inherent in this instrument, and held only about 10% of the portfolio in it. As a result, despite the fact that my local deposit reduced to a meager figure, I have not lost anything except profit over the past few months, which by now, by the way, has already fully recovered (and I do not need to wait for the compensation account to close, like some). This was due to the fact that other assets in my portfolio continued to work and make a profit.

But enough about the obvious - let's turn to something that few really think about.

Currency diversification

Already more interesting. Since we are mainly dealing with investing in the international Forex market - the international over-the-counter international Forex currency market, we know that the exchange rates of various states are unstable and are in constant motion. This is due to the fact that exchange rates the main states and blocs have long been not tied to gold reserves or even GDP or the foreign trade balance of a particular country, but are in the so-called "free floating" - their rates are determined by market mechanisms, demand and offer for one currency or another. This, in fact, is the essence of the foreign exchange market.

We also know that the main currency quotes, which are used for most transactions on Forex, are the rates US dollar: USD/CHF, GBPUSD, EURUSD, USDJPY, and so on. Transactions in which American dollar, the Forex market is much larger than any other - both in terms of volume and quantity. Accordingly, traders open most trading accounts in this currency - although brokers, as a rule, offer a choice of and, and sometimes even more exotic currencies- a pound, for example, or even gold.

Now let's imagine that we have invested in 10 managed accounts, and all of them are denominated in US dollars. And suddenly, waking up one morning, we hear the following news: USA announced a technical default on its debt obligations - bonds with various maturities, treasury securities, etc. Now it seems unlikely to you? Understand. And remember July of this year (2011) - in size external debt USA even serious economists were seriously alarmed, and Republicans and Democrats could not agree on raising the acceptable ceiling of the national debt, and large state banks (for example, China) began to slowly get rid of doubtful US debt obligations. Even the very rumors of such events have a powerful effect on exchange rates, not to mention the fact that the event had every chance of happening. And what do you think - the size of the US national debt has decreased since then? No matter how. The problem was hidden, but not solved. And what is happening at this time in the Eurozone? At the moment, even those who are not interested in Forex and politics have heard about the debt problems of Greece and other PIIGS countries that can sink the entire Eurotitanic, and first of all the single eurocurrency. As well as the inability of the government and influential financial circles euro union to coordinate their actions to quickly resolve these problems.

But back to our hypothetical situation. As it turned out, our "well-diversified" portfolio of 10 PAMMs depreciated anyway - despite the seemingly competent instrumental diversification... No, of course, the numbers on our balance sheet, in US dollars, remained the same. Except that the value of those dollars has gone to zero or so, which means we're still left with nothing.

Solution? Currency diversification involves the creation of assets in various currencies- so you will be less dependent on their fluctuations, or on the risk of a catastrophic fall of a particular currency. Even dividing their assets equally between dollar and Euro, You will already be ready for global catastrophes - since EURUSD is currently the most traded currency pair to the international Forex market, then a sudden and strong fall in one of these currencies will automatically lead to an increase in the other, since large investors, central banks, hedge funds and other market makers will hastily transfer foreign exchange reserves to the other side, and this will lead to an increase in the volume of purchases of the second currency, and, consequently, an increase in its value. And most likely, this will happen even before the thunder actually breaks out - as a rule, the people responsible for making such decisions in the aforementioned organizations are well aware of upcoming events in advance.

Of course, in today's world, neither the United States nor Euro cannot be considered stable currencies. Ideal assets today are gold and the Swiss Franc. Unfortunately, I have not yet seen PAMMs nominated in Franke. But in gold, some accounts on Alpari are already open. The choice is not rich yet, but this type of accounts is gradually gaining popularity. As for , one of the most famous accounts that has been trading in euros for three years now is Invincible Trader, and from ruble PAMMs, I recommend the Baffetoff scalper. By the way, he also has an account in euros, however, with an identical strategy.

Institutional diversification

The words are getting scarier, but don't worry, now we'll figure it out.

So, you and I successfully coped with the fall of one or several assets, and even foresaw such a global event as the fall of world currencies. We distributed our funds among 10 Alpari PAMM accounts opened in different currencies and went to bed peacefully.

The next morning, when we wake up, we are surprised to learn that Alpari ceases to exist due to (for example) any litigation with its market makers (suppliers liquidity), and payments on the company's obligations are deferred indefinitely.

No, God forbid, of course, the Alpari company long life, financial stability and prosperity, but if the obligations of the US state, which has existed for more than 200 years and has a high credit rating of AA + (until recently, by the way, even higher "AAA") are in doubt, what to say about the company Alpari, which is only 15 years old, and which exists in a country with one of the highest levels of corruption in the world.

So, we learn that although everything is in order with the exchange rates in which our assets are denominated, and traders work diligently and do not merge, we cannot withdraw our investments, and it is generally unknown when we can.

To insure such risks, there is the so-called "institutional" diversification, or the distribution of funds between various organizations.

So, we support the theory with visual material: today, PAMM accounts are opened on more than a dozen sites, and, thank God, their number is only growing from year to year.

Sources and links

coolreferat.com - Collection of abstracts

center-yf.ru - Financial Management Center

zenvestor.ru - Blog about investing

slovari.yandex.ru - Dictionaries on Yandex

en.wikipedia.org - The free encyclopedia

dic.academic.ru - Interpretation of words

elitarium.ru - Financial Management Center

bibliofond.ru - BiblioFond Electronic Library

revolution.allbest.ru - A selection of essays

bussinesrisk.ru - Portal about business

ankorinvest.ru - Portal for investors

Encyclopedia of the investor. 2013 .

• Dictionary of business terms - diversity, change Dictionary of Russian synonyms. noun diversification, number of synonyms: 2 change (73) … Synonym dictionary



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Even the most successful business or enterprise cannot constantly develop and function according to criteria alone. Both a large and a small participant in the business sphere cannot exist unchanged for a long period of time. The market, as well as the external environment as a whole, is constantly changing and developing. Someone leaves, someone returns, new players appear, so even the most successful enterprise needs to change the centers of economic attention, distribute funds, look for new approaches to development, and so on.

This rule has been successfully confirmed by thousands of domestic and foreign companies and millions of small businesses. The concept of “diversification” has been dealing with this issue for a long time. However, most market participants neglect this concept, and today we have to find out what diversification is for and what it happens. Consider what diversification is in simple terms.

Diversification - what is it

In a general sense, this term means:
• redistribution of attention spots in the market;
• expanding the range of goods or services produced;
• search for new markets;
• mastering new technologies and production methods for expansion;
• obtaining additional profit;
• elimination of possible bankruptcy.

In simple terms, diversification is a way of doing business. economic activity, in which the rate of obtaining benefits is made on several equal centers. This also applies to markets. For example, when you have a certain capital, in order to benefit from it with minimal risk, you invest in the shares of several successful companies at once.

Did you know? According to research by the Financial Times, last years the domestic resource-based economy has become one of the top world leaders in terms of direct diversification of foreign investment.

With the right approach to the basic principles of the concept, to diversify means to get a wide range of actions that can find their application:
• in the foreign exchange market - when investing in different currencies or assets;
• in real estate - by investing in commercial objects of various types;
• when opening a deposit - using several banks as objects at once;
• when buying precious metals - investing simultaneously in platinum, gold, silver, etc.

At the same time, a properly diversified company is a new player in the market, which is able to master new production technologies and increase profits in a fairly short period of time. After that, such an enterprise becomes dynamically developing, as a result of which it can survive more than one positive process of asset restructuring.

Benefits of Diversification

As mentioned above, when investing Money in one tool of earning the risks of bankruptcy are very high. When distributing funds between several objects or directions, the chance of losing capital is reduced to almost zero. Diversification is the best way out of a crisis for a company in a declining industry. It is a strategy that reduces dependence on many external sources, increases competitiveness in the market, improves financial efficiency and increases profits.

Did you know? Diversification arose in the second half of the 20th century in advanced economies. This process was preceded by the previous development of economic and industrial relations in the USA, Germany, Japan and other developed countries.

The main advantage of diversification is to get the maximum economic effect from all possible diversity. In other words, an enterprise that produces several types of products at once will be more profitable and competitive in the market than one, but popular.

In this case, the effect is achieved due to:
• multi-purpose use of all available resources;
• building an effective sales network for goods and services;
• versatile training and education of personnel.

Diversification (by type)

Diversification is a predominantly branched concept; it can be used for almost any area of ​​business and entrepreneurial activity. Let's take a closer look at some of its types.

production

Production diversification is a strategic reorientation of an enterprise's activities towards expanding the number of types of products produced and expanding sales markets. Its main idea is to provide the company with market stability in the event that one of the production lines becomes unprofitable at the expense of other production lines.

Often this process can result in a unique technology, process or product. Thus, the concepts of diversification and narrow specialization are opposite in meaning. An example of this type is a music factory, which, in order to stay afloat, masters the production of cabinet furniture.

Products

Product diversification is a process that is expressed in an increase in the number of goods and services by an enterprise due to the development of new technologies and production methods, or numerous modifications of one type of product. This type is a form of economic struggle with competitors for a place in the market.

An example is a mineral water factory that is trying to take over the sugary drinks segment.

Price

Price diversification is primarily a strategy aimed at maximizing the coverage of the number of buyers with different levels income. It provides for the establishment of a different pricing policy for products in relation to the solvency of potential customers. The ultimate goal of this process is to maintain the profitability of production and increase sales.

Prices may vary depending on:
• income level of consumers: issued in the form of discounts on popular goods for less wealthy buyers or through personal pricing;
• the quantity of goods or services consumed: for example, wholesale or large consumers receive additional discounts;
• product categories: by creating more expensive products among the assortment by creating an artificial popularity around it among certain buyers.

business

Business diversification is the distribution of the company's capacities among different sectors of the economy. The main essence of this process is to get more profit and establish a higher status of the company.

In its specificity, this concept lies in the fact that, in addition to itself, the company invests in other enterprises or financial institutions often unrelated to each other. This helps to more effectively master and increase capital and minimize financial risks.

For example, a car oil company buys securities or enters the foreign exchange market. Often in business, diversification helps overcome economic crisis and save assets.

Capital

Capital diversification is the process of investing money in different industries and financial institutions, which in most cases are unrelated. This is the easiest way to save capital at minimal cost, as this type does not provide for the full distribution of available funds.

For example, to reduce the risk of loss, part of the money is distributed among several banks, and part is invested in securities. This reduces the risks by several times, since it is unlikely that all banks will go bankrupt at the same time, and securities will lose their solvency.

Economy

Diversification of the economy is one of the most complex and global examples of the distribution of cash flows. In a general sense, it means the investment of capital at a general level in such a way that all branches of the state develop in proportion. This makes it possible to create a powerful economy that is immune to any crisis conditions.

For every country to diversify its activities is a necessary step, since the smooth growth of all types of industry stimulates the development of links between industries, which in turn stimulates the overall the economic growth, entrepreneurship and income.

Investment portfolio

Diversifying an investment portfolio is economic system management of possible risks, in which the distribution of funds between different instruments of earnings. Its essence lies in the fact that the total risk of the investment portfolio will be ten times less than that of a separate package. Thanks to this, it is possible to achieve a long-term and stable increase in cash. To do this, in addition to stocks and bonds, it is recommended to add precious metals, real estate, and so on to the portfolio. All this in the long term ensures the stability and growth of assets.

Important! When diversifying an investment portfolio, the main thing to pay attention to is the three most important characteristics of the process: return, correlation and risk.

A well-diversified portfolio is such an investment instrument that consists of many securities in such a way that the share of each type relative to the total significance is small. The risk of such a portfolio approaches the general indicators of the occurrence of risk situations in the market, while the risk of each security is covered equally.

risk

Risk diversification is the distribution of investments within the portfolio in all possible ways and methods, in which the possibility of a complete loss of funds is reduced to zero.

In simple terms, this means that the investor, when investing, is insured against possible losses due to the redistribution of invested funds between more and less risky areas, respectively. At the same time, risk reduction in theory should not affect the profit received.

Important! Use only non-correlated assets when diversifying your investments, this is the best way to save capital, because while one asset does not give a profit, the other doubles it!

Types of diversification

In generally accepted scientific sources, three types of this concept are distinguished, depending on the direction, methods of its use and involved production zones. Below is a brief description of each.

Related

A related process is a diversification process in which an increase in the range of a company's products due to new goods or services occurs. At the same time, new products are not the main ones, but have serious technological ties with primary goods.

Related diversification can be divided into:
• vertical;
• horizontal.

vertical diversification. This type of related diversification, in which a by-product in expanded production is used either in the chain of production of the main goods, or, conversely, in the production of an additional product, a purely main product is used.

For example, huge metallurgical corporations, which own enrichment plants, produce pellets for their own purposes, but the surplus of production is sold to competitors.

A type of related diversification in which a new type of product in expanded production is not used for the immediate purposes of the company, but is manufactured using existing technologies.

For example, a communications company is mastering a process for manufacturing lighting fixtures. In this case, the new product is released either under the same brand or under a completely new name.

Unrelated

This is a kind of redistribution of the company's financial priorities, in which the development of a new direction of industry production occurs due to the involvement of own funds and capital. At the same time, the new production line is in no way connected with the old direction of the company.

The biggest plus of such a diversification of the enterprise is the development of flexibility in the market as the main quality of the company, and the development of new production methods makes it possible to avoid the risks associated with the possible unprofitability of other production lines. On an example, it looks like this: a new production is based on the technological base of the old line or creates all the conditions for the release of new goods from scratch.

Combined

Combined diversification is one of the most common methods of enterprise or company development.

In its structure, this is a mixed view that is launched into action thanks to several ways:

Often the combination is the merger of several companies that are opposite in the economic sphere, in order to continue to exist exclusively in the direction of universal development.

A diversification strategy is a marketing move that allows companies to discover new business opportunities that are different from the current product line. The main essence of the strategy is to redistribute the funds and capital of the company between different types of activities, which significantly reduces the risk of bankruptcy of the enterprise.

In today's highly competitive market conditions, strategy becomes a powerful tool for managing all kinds of risks. With the right start of the process, the company manages to avoid bankruptcy or losses even in difficult periods of crisis for the economy.

Strategy types

Among the existing strategies, three main types can be distinguished: conglomerative, centered, horizontal. Below we will consider them in more detail.

conglomerative

A conglomerate diversification strategy is a process that aims to ensure that a company starts producing goods and services that are not related to its main products and its sales markets.

This strategy is one of the most complex of all existing today. This is due to the fact that building its proper functioning depends on many environmental factors, including the qualifications of managers and ordinary staff, the availability of the necessary funds and seasonal economic market changes.

The opposite of this strategy is the concentric diversification strategy, in which a new product is produced, which, from a technological and technical point of view, is identical to the existing ones in the enterprise at the moment. Its role is to attract additional customers through offers for consumers from different social environments.

Centered

The centered diversification strategy is for the company to look for new production opportunities based on existing processes and lines, as well as core products.

This strategy provides for the opening of new product lines solely on the basis of the best achievements of previous products or services. At the same time, this part of the business develops and operates separately from the main portfolio.

An example of such a strategy is the Hilton hotel chain. From premium-class hotels, the company relocated to the construction of hotels of a more affordable level, which helped the company to take a leadership position in this circle.

Horizontal

The horizontal diversification strategy involves the growth of the company's finances by creating a new product that requires new technologies that are not similar to the previous ones. With such a strategy, the company creates technologically unrelated products, for the implementation of which existing tools can be used (for example, in logistics or wholesale sales).

This strategy provides for the creation of products that must be consumed by the main product or become its accompanying part.

Choosing a diversification strategy

The development of a business diversification strategy can be both the best way to solve the financial problems of the company, and provide an opportunity to manage all kinds of risks in the company's commercial activities. However, the economic growth of an enterprise is possible only with the correct diversification of the company, and this is the main tool for a successful business. Therefore, further we will talk about how to choose the right strategy and do everything to ensure that the company exists only stably.

Business Analysis

This is the first thing to start with, since conglomerate and other types of diversification are impossible without it. The analysis should be detailed, and the head of the enterprise should clearly identify for himself the main strengths and technological and economic base of his institution and, on the basis of this, determine possible ways to develop the business.

Important at this stage is the answer at the end of deep monitoring to three key questions:
1. What are the strengths of the production?
2. How stable does the company feel in the market?
3. How many free resources are in stock?

Direction search

After a serious analysis of the business, the next stage is for management to determine for themselves the right direction for diversifying the enterprise. This is a rather complex process, which is based on serious macroeconomic research. As a result of this, specific industries are determined in which the enterprise will be able to realize itself most profitably in the shortest possible time. But the most common phenomenon is the expansion of production based on the personal experience, preferences and capabilities of the owner. This path has its pros and cons, but the approach is quite effective if it is supported by serious knowledge.

This stage is no different from assessing the risks and prospects when creating a business from scratch. An assessment of the competitiveness of the production line is carried out, an analysis of all existing competitors, it is also important to determine general trends and prospects for development in the market as a whole and opportunities for future diversification of pricing policy. All this together will help to finally choose the future paths for development for the enterprise.

At the end of this stage, it is important for the manager to answer the following questions:
• What are the long-term prospects for the development of the market and the economic situation?
• How to sell new products?
• Does the firm really own all the necessary resources?
• Is there a plan to fund the process?
• Is there a clear work plan for the next 5 years?
• Are there better alternatives for developing or overcoming the financial crisis?

Portfolio Analysis

The next step after completing the analysis of the prospects for the development of a new line of business is to assess the feasibility of a new product within the existing financial portfolio. It is not very difficult to do this, in the specialized literature there are a lot of professional matrices.

At this stage, it is important to understand whether the product will fall outside the space allotted for it in the portfolio. Otherwise, it will be difficult to predict the future fate of the business.

Diversification Examples

While for our economy diversification is something new and unknown, for most foreign companies such a process is something ordinary, not requiring special attention. In addition, without this it is impossible to imagine the successful functioning of the business for many years.

Here are some examples of successful implementation of the process:

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• How does diversification in the state economy affect your pocket?
• How to reduce the risk of your investments?

Whatever stage a business is in, diversification is the best way to not only preserve hard-earned assets, but also increase capital. Thanks to many years of experience of international companies from all over the world, this process has come to us in the most effective form. But despite the high effect of the redistribution of the investment portfolio, the main thing is to remember the expediency of decisions and costs in relation to the economic effect obtained.

To describe the diversification effect, let's compare the standard deviation of a portfolio with the weighted average standard deviation of its constituent securities. The weighted average of the standard deviations of securities A and B is:

The difference between the results obtained from expressions (4.13) and (4.14) is one of the main provisions of the investment portfolio theory - the manifestation of the diversification effect, which consists in the fact that the standard deviation of the portfolio (and, accordingly, the risk) is lower than the weighted average standard deviations of income - those of its components - individual securities.

So, investors minimize the standard deviation of portfolio returns by diversifying the securities in the portfolio, and the combination of different securities in the portfolio can only slightly reduce the standard deviation of the expected return, especially if these securities have a high degree of positive covariance. The effect of diversification is achieved only if the portfolio is made up of securities that behave differently in the market. In this case, the standard deviation of the portfolio return can be significantly smaller than the deviations for the individual securities in the portfolio. Indeed, if the stocks in the portfolio behave in the same way, the risk of the portfolio does not decrease, and if the two securities of the portfolio have an absolute negative correlation (= - 1), then the risk of the portfolio can be completely eliminated.

More on the topic The effect of investment diversification:

1. RECENT EFFECT, EDGE EFFECT - see Position Curve, Primacy Effect.