For instance due to financial crisis many western countries invested a significant portion of their funds in the equities of growing Asian countries like China and India. This is known as international diversification and enables an investor in tackling the country specific risk. The integration of the global financial markets has facilitated the creation of international portfolio which besides mitigating the risk factor helps in taking advantage of the markets of the developing economies.
A share portfolio generally comprises of securities of various sectors. For effective diversification the sectors should be non-related such as oil refining companies and automobile. A rise in the price of oil is beneficial for the oil refining company but this can adversely impact the sales of the automobile company. This will push up the share price of the oil refining companies but will batter the share price of the automobile companies. Thus the value of the portfolio will remain protected as the fall in its value due to a fall in the share price of automobile company like Rolls Royce will be compensated by the rise in the price of the oil refining company. This highlights the advantage of investing in a portfolio.
The share portfolio that has been constructed comprises of securities belonging to varied sectors like pharmaceutical, healthcare, food & drug retailers, financial services, software etc. By including the stocks of different sectors, the risk of a fall in the portfolio value has been minimized. Any adverse, ‘sector specific’ news will only affect the shares of that particular sector, without influencing the share price of the other sectors. This will keep the portfolio value intact which is the ultimate aim of investing in a portfolio.
In the IT industry the stock chosen is Autonomy Corporation. The company features among the top Software 500 companies published by Software Magazine (Financial Express, 2009). This ranking is based in terms of