Empirical Testing on Diversification of Indian Stocks for Optimizing Portfolio Risk

The investor's risk-return trade-off can be achieved by diversification of equity stocks. Diversification is the process of investing in various stocks for minimizing risk or maximizing return of portfolio. The study proposes to optimise portfolio risk for rational investors and demonstrates the benefits of diversification of each stock in portfolio. We use sample data of daily share prices of Nifty stocks’ data for 9 years. The empirical study shows that the portfolio returns are maximizing and portfolios risk is minimizing as we add more number of stocks into portfolios of the sample stocks. This shows that investors can scientifically diversify the stocks and build the efficient portfolios in the Indian capital market.