How-to: Company Pages
How to: Discovery
How-to: Portfolio Holdings
How to: Activity
How to: Leaderboard
How to: Performance
How to: Challenges
How to Trade
How to: use EquitySim to improve your recruitment potential
Fixing Account Errors
My Trade is not being processed
An investment in my portfolio is showing up as $0
Stock splits, mergers + acquisitions
I can't find a specific investment
I can't sign-up
My credit card is being declined
Showcasing your work on EquitySim
Designing a stand-out resume
Preparing for the S+T interview
STAR Structure for Behavioural Interview Questions
Interview Practice - Partner Exercise
2021 Credit-Suisse Investment Challenge
Case Study: 2019 Credit-Suisse Results
What is a Stock?
How to Choose a Stock
Active Trading vs Portfolio Management
How to start testing multiple strategies
What is an ETF?
How to Choose ETFs
What is short selling?
What is a Bond?
What is an Option?
What is Portfolio Management Strategy?
What is Diversification?
What is the Diversification Score?
How to Build a Basic ETF Portfolio
What are asset-classes?
What is Industry Exposure?
What is Geopolitical Exposure?
How to read impact on diversification
What is Volatility?
What is Return?
What is Sharpe Ratio?
How to Improve Sharpe Ratio
How do I measure risk?
What are average excess returns?
What is a good Sharpe Ratio?
Host your own EquitySim Challenge
Can users share an account?
How do I export classroom data?
How do I delete, archive and edit my class?
Challenge Setting Types
How does EquitySim compare to other simulations?
What are Trading Strategies?
What are some basic Financial Vocabulary?
Recording your Strategies and Rationales
What is EquitySim?
Can I undo a trade?
How are prices determined in the simulation?
Why didn't my trade execute immediately?
How do I exchange currency?
Why isn't my ranking showing up?
What are Public Portfolios?
How do I switch between portfolios?
How am I Graded?
Does EquitySim have sample assignments for my curriculum?
How are Options priced in the simulation?
How do I find my daily portfolio change?
How do the Portfolio Emails Work?
Is my data confidential?
How do I delete my account?
How our simulations reflect the real-world
What can I trade on EquitySim?
What is a good rationale?
How to set-up your team
What are the different order types?
Which government bonds can I trade?
One of the greatest benefits of a portfolio management strategy is being able to heavily use diversification.
Intuitively, diversification refers to "don't put all your eggs in one basket." If something bad happens that has a negative effect on one of your investments, holding other investments that are very dissimilar make it is less likely to also negatively affect those investments.
Better Risk - Return Tradeoffs
Professional investors are evaluated by their ability to balance risk and return. These investors are constantly looking for the investment that can generate the highest return for the lowest risk.
Portfolio Theorists have mathematically proven that investors can achieve better risk/return ratios when combining more than one investment together. Generally, they saw that the more dissimilar the combined investments were, the greater the boost in their combined risk/return profile.
Combining a set of investments that are dissimilar is known as a Diversification strategy.
Diversification is most associated with decreasing the risk of a portfolio. Theorists show that with diversification investors can achieve the same expected return, but by taking less risk, making these strategies superior to their non-diversified counterparts.
Intuitively it is simple, the more bets that you make the higher likelihood of you hitting winners, which can balance out the losers that you choose.
Is there a limit to diversification?
Imagine investing in every single investment available in the world. Would this be a good strategy? While this sounds extreme, there are many professional investors who try to do this. Professionals like Ray Dalio fully endorse diversification and hold thousands of investments in their portfolios.
Other professionals like Charlie Munger (Warren Buffet's partner) preach: "True professionals should be able to choose the best investments, being too diversified is a sign of being unskilled."
Regardless of where you land on the spectrum of diversification, most professionals agree that diversifying to some degree is wise. Finding the right balance of diversification and investment picking will be critical to your success. At EquitySim, we believe that if you are less skilled, leaning towards high diversification makes the most sense.
How can I improve my diversification?
Use our diversification score to guide you towards higher diversification. While there are many ways to slice investments in terms of similarity the elements we focus on at EquitySim are: Asset-Class Type, Country, and Industry.