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Efficient Diversification Strategies: Mitigating Unsystematic Risk with DS-30 Stocks

Author

Listed:
  • Shahed Ahmmed

    (University of Dhaka)

  • Shohana Siddique

    (University of Dhaka)

Abstract

DS30 index consists of 30 high-qualities, blue chip companies' stocks, and it is the most reputed index in the stock market in Bangladesh. This paper tests whether stocks of this index can be used for risk diversification. The objective is to find out how many DS-30 stocks can eliminate 85% of Unsystematic Risk without compromising return. The analysis is based on 5-years of monthly data collected from Dhaka Stock Exchange. In this study, DS-30 stocks are selected and added to an equal weight portfolio, one by one in the descending order of their average monthly return, unless the resulting portfolio is able to eliminate 85% of Unsystematic Risk. This order of selection ensures that, return is not compromised at a cost of diversification. Results show that, it takes only ten DS-30 stocks to accomplish the objective.

Suggested Citation

  • Shahed Ahmmed & Shohana Siddique, 2022. "Efficient Diversification Strategies: Mitigating Unsystematic Risk with DS-30 Stocks," Post-Print hal-04547688, HAL.
    • Handle: RePEc:hal:journl:hal-04547688
    Note: View the original document on HAL open archive server: https://hal.science/hal-04547688v1
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    References listed on IDEAS

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    1. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
    2. Elton, Edwin J & Gruber, Martin J, 1977. "Risk Reduction and Portfolio Size: An Analytical Solution," The Journal of Business, University of Chicago Press, vol. 50(4), pages 415-437, October.
    3. Statman, Meir, 1987. "How Many Stocks Make a Diversified Portfolio?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 353-363, September.
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    More about this item

    Keywords

    Diversification; Unsystematic Risk; Systematic Risk; Portfolio Risk Calculation; DS30; Dhaka Stock Exchange; Stock Market; Bangladesh;
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