Dangers of Diversification

There exists no single measure of risk that is appropriate to all investors, partly because there is no clear definition of risk. Investment strategies such as diversification are often used in an attempt to reduce risk. We analyze several risk and performance measures and discuss their implications for investors with various risk preferences. We then determine the correlation between these risk and performance measures to illustrate their similarities and differences. This project was done in cooperation with Aetna Retirement Services.