The Effect Of Portfolio Diversification Theory: Study On Modern Portfolio Theory Of Stock Investment In The National Stock Exchange

Investment in stock (and all other financial assets) has two basic parameter. One is risk and the other one is return. These parameters have an inverse relationship and all investor face a trade – off between risk and return. These are two types of risk. One is systematic and unsystematic risk. Systematic risk is the risk that exists inherently with investment due to changes in the whole economic political and social condition. systematic risk is non-diversified. Unsystematic risk however is firming specific and is diversified. It is contributed by problem and risk involve in one company. Modern portfolio theory suggests that as the number of securities in a portfolio increase the portfolio risks decrease. It basically implied that investing in more securities; investor can avoid the specific risks involved in individual firms. This study will apply theory on securities traded on the NSE starting from making a portfolio with 100% investment in one security to an equal weighted investor in six securities. This securities selection frim Indian stock market.