DIVERSIFICATION-Diversification is a technique that reduces risk by spreading investments across various financial instruments, sectors, and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event. . Most investment professionals agree that although it does not guarantee against losses, diversification is the most important element in achieving long-term financial goals while minimizing risk. Diversification between products and markets is due to economies of scale and scope. DIFFERENT TYPES OF RISKS – Investors face two main types of risks when it comes to investing1. Non-diversifiable – This type of risk is commonly referred to as systematic risk or market risk. This risk is associated with each company. The causes are things like inflation radius, foreign exchange radius, political instability, confidence rate. This type of risk is not specific to any particular company or sector and it cannot be eliminated or reduced through diversification, it is simply a type of risk that investors must accept.2. Diversifiable - This type of risk is opposed to systematic risk known as unsystematic risk and is specific to a company, a sector, a market, an economy. It can be reduced through diversification. The most common sources are business risk and financial risk. The main motivation is therefore to invest in different assets so that they are not all affected in the same way by market events. a) Economy of scale and economy of scope must be diversified. Diversification goes a long way in increasing a company's ability to grow faster. The main reason a business diversifies is survival. For example, a company sells heating pads, they will do good business during winters and also need to cover up for summer during...... middle of paper...... while they were based on economies of scope between related companies in terms of markets and technologies. More generally, diversified companies have not performed well and many conglomerates have refocused their business portfolios. Although mergers have increased shareholder value, these increases have largely benefited the shareholders of the acquired companies. Over a long period, active diversifiers have sold many of their acquisitions.REFRENCING-1. http://www.aabri.com/manuscripts/10740.pdf2. http://www.investopedia.com/articles/02/111502.asp3. ECONOMIS OF STRATEGY, THIRD EDITION, BY- D. BESANKO, D. DRANOVE, M. SHANLEY, S. SCHAEFER4. http://organizationsandmarkets.com/2007/05/20/economizing-and-strategizing5. http://www.svt.ntnu.no/iso/anders.skonhoft/indecolchapter6%201009.pdf