How Diversification Impacts Investment Outcomes

Research shows that a focus on small cap, low relative price, and high profitability stocks can increase expected returns. While realized premiums may differ from expectations, robust strategy design can increase the likelihood of outperforming the market. The probability of out-performance is influenced by a few variables, including how much a strategy is focused on the premiums and the volatility of the premiums. A third important driver for the reliability of out-performance, and the focus of this column, is the level of diversification.

For more information about How Diversification Impacts Investment Outcomes: A Case Study on Global Large Caps, click here

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