What Does Diversification Mean In The Context Of Corporate Finance?

Diversification Student’s Name Institutional Affiliation Diversification In finance, diversification is a process in which a business allocates capital in a way that minimizes the exposure to a particular asset or risk (Bloom & Kotler, 2018). Diversification can be achieved through investing in a variety of assets to reduce risk or unpredictability. Diversification depends on the lack of a constricted relationship amongst the assets known as the returns and works with correlations next to zero or nearly positive. Diversification involves the creation of a balanced investment portfolio that is capable to spread risk by covering a range of different types of assets. A firm undertakes different actions to reduce risk through diversification, including diverse business lines, project partners and maintaining risk portfolio project. For example, there is a vulnerable effect of risk if an investor tends to invest in stock alone. This is because the value of that investment relies on the outcome of one asset. If you diversify in different kinds of portfolio there is a low chance of failure in all the investments (Hitt, Ireland, & Hoskisson, 2006). Diversification plays a role in mi...