Selection of Optimal Portfolio by Use of Risk Diversification Method

The paper will discuss how securities investors can protect themselves from risk through diversification. There will be proposals how investors should structure their portfolio, i.e. proposals of investment percentages for particular shares, in order to achieve stable solid returns at a low level of risk. The paper will analyze three types of stock: INA – Oil Industry Plc., IGH – Croatian Institute of Civil Engineering Plc. and Viro Sugar Factory Plc., which can be used to gain a better understanding of the investment business. We shall describe the basic tenets of modern portfolio theory so as to explicate some fundamental issues of securities investment and portfolio creation. The paper will provide an analysis of Markowitz’ theory as the origin of modern portfolio optimization theory, which in turn represents the starting point for securities investments.