Portfolio Management Concepts Portfolio management concept is a profitable weapon as it not only offers not only returns but the investor also has to face the risk associated with it. If the investor is willing to obtain a higher return he must associate a higher return with a higher risk. To diversify risk, an investor can follow the diversification rule. As part of diversification, the investor can include assets that are not correlated with each other and therefore by including these asset classes he can diversify while eliminating risk. However, in terms of risk there are two types of risk i.e. unsystematic risk and systematic risk and an investor can only diversify the unsystematic risk by following the diversification rule by including the asset classes which are not correlated with others and the remaining risk will be systematic risk, which cannot be diversified even if the investor includes all the securities available in the investment universe. Systematic Risk For KMK Holdings, diversification is an important part of portfolio construction. Considering the market conditions which have become highly risky due to low interest rates and high volatility, the company, in order to diversify risk, will use the asset allocation strategy by investing in shares, ADRs and ETFs in a rational and proportionate. The portfolio consists of 15 stocks, 3 ADRs and 1 ETF, the net worth of the portfolio at the time of writing this article was $103892.97 while the total leverage is $108931. The portfolio has earned a return of 3.89% on an overall basis while on a daily basis the yield is 1.35%. However, the portfolio did not outperform the S&P 500 benchmark as the benchmark return of 7.67% is not achieved by the portfolio. De...... middle of paper ......t might question the decision of investment. This can also be extended to previous beliefs. For example, an investor may believe that Dell is a good company and including Dell stock in the portfolio is a good decision even if Dell is not performing well at the time of building the portfolio. Escalation Bias: The investor's tendency to drive investing through psychological feelings can also be related to an escalation bias. This refers to the investor's tendency to commit more funds to a position that has fallen, often referred to as averaging (the purchase price) down. To the extent that investors undervalue information in opposition to the original purchase decision and overweight the importance of information indicating that the original decision was “correct,” they will tend to average down too often, increasing the size of their position..