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Risk Evaluation in Multiactive Portfolio of Shares

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  • Rossen Nikolaev

Abstract

One of the ways of decreasing the risk in the investments is diversification. This means the capitals not only to be spread in many investment holders but to be also properly chosen. Many examples (theoretical and practical) show that it is not always possible to create a portfolio with less risk than the risks of the consisting assets. The paper formulates and proves conditions for the connection between the correlation coefficients and the assets’ risks. When these conditions are present, it is not possible to create a portfolio between them with a risk, lower than the individual risks of its consisting assets. Given are also such conditions, which presence allows always creation of a portfolio with minimum risk. For demonstration of the application of the acquired results studied are the opportunities for creating proper portfolios of shares of 10 of the highest ranked companies at the Bulgarian Stock Exchange (BSE).

Suggested Citation

  • Rossen Nikolaev, 2002. "Risk Evaluation in Multiactive Portfolio of Shares," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 135-146.
    • Handle: RePEc:bas:econst:y:2002:i:3:p:135-146
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    References listed on IDEAS

    as
    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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