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Finance GlossaryDiversification
Diversification
Definition of Diversification
Diversification is the act of investing in more than one asset class, sector, industry, or country to mitigate risk. It is an investment strategy designed to reduce risk by pairing a volatile asset class like equities with a fixed income asset class like fixed deposits. Or, by investing in equities in one country and complementing it by investing a portfolio in stocks from another country.
Related Terms
Placing
Placing, or Private Placement, is a process of raising capital in which a company sells its securities (stocks or bonds) to a selected group of investors (such as banks, mutual funds, insurance companies) or high net worth individuals instead of selling them to the general public through a public offering (like an IPO). In India, companies frequently use private placement to raise funds in a short period of time from specific investors. This is a faster and less expensive process than a public issue.
Accrued Expenses
An accrued expense is the cost that is incurred in the current accounting period but is due to be paid in the future.
More simply, an accrued expense is an unpaid bill due in the future for goods or services that have already been received by a company.
Accrued expenses show up as liabilities on a company’s books.
More simply, an accrued expense is an unpaid bill due in the future for goods or services that have already been received by a company.
Accrued expenses show up as liabilities on a company’s books.
Narrow Market
A narrow market describes a situation where only a few stocks or sectors influence market movement, while the majority of stocks have low trading volume. It has few active participants on either the buy or sell side of the market. This limited participation suggests that the market trend is not broadly supported across the entire market.
Exponential Moving Average
Exponential Moving Average (EMA) is a technical indicator used to follow price trends over a specific period of time. EMA assigns more weight to recent prices than older prices. The formula to calculate EMA is:
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Momentum Indicator
Momentum Indicator is a technical analysis tool that measures the speed and strength of price movements. It helps traders identify whether a trend is gaining or losing strength by comparing current prices to past prices, making it useful for spotting potential trend continuations or reversals.
Equity Shares
Equity shares is a term used to describe stock of a company that’s issued via an Initial Public Offer (IPO), already issued and traded on the stock market, or freshly available through a Follow on Public Offer (FPO).
For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.
For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.
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