Enhancing Portfolio Diversification: Are Diamonds Forever?

Abstract

Investments in real assets are appreciated to enhance the risk–return profile of investment portfolios. In this article, the authors investigate the diversification contribution of diamonds to a portfolio of financial assets, using data from 2002 to 2012, on behalf of the European investor. Applying Markowitz’s model, they compare diamonds with Italian real estate and also with German real estate, investigating under which circumstances diamonds enhance the diversification effect. In particular, they assess the influence of the 2008 financial crisis on the diversification effect provided by diamonds.