Alternative investments provide diversification benefits from "summary" of Institutional Investment Management by Frank J. Fabozzi
Alternative investments, such as private equity, hedge funds, real estate, commodities, and infrastructure, offer institutional investors the opportunity to diversify their portfolios beyond traditional asset classes like stocks and bonds. By including alternative investments in their portfolios, institutional investors can potentially enhance returns and reduce overall portfolio risk through diversification. One of the main reasons why alternative investments provide diversification benefits is that they have low correlations with traditional asset classes. This means that the returns of alternative investments do not move in the same direction as the returns of stocks and bonds. As a result, when one asset class is performing poorly, another asset class may be performing well, helping to offset losses and stabilize the overall portfolio. Furthermore, alternative investments often have unique risk and return characteristics that are different fro...
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