Value at risk and the diversification dogma

TL;DR

This paper critically examines the risk diversification principle, demonstrating that its effectiveness depends on individual risk characteristics and their dependence structure, challenging the conventional wisdom that diversification is always beneficial.

Contribution

It provides a nuanced analysis showing that risk diversification is not universally advantageous and depends on specific risk features and their dependence relationships.

Findings

Diversification is not always optimal; depends on risk characteristics.

Dependence structure among risks influences diversification benefits.

Challenging the traditional view of diversification as universally beneficial.

Abstract

The so-called risk diversification principle is analyzed, showing that its convenience depends on individual characteristics of the risks involved and the dependence relationship among them. ----- Se analiza el principio de diversificaci\'on de riesgos y se demuestra que no siempre resulta mejor que no diversificar, pues esto depende de caracter\'isticas individuales de los riesgos involucrados, as\'i como de la relaci\'on de dependencia entre los mismos.