Capital preservation strategy

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A capital preservation strategy (also hedging strategy or English portfolio insurance ) is intended to protect the investor against unfavorable market developments on the securities markets ( market risks ) by means of special financial instruments and other measures . While the investor fully participates in market movements up or down without protection, the protection limits his possible loss - but in return he also loses part of his profit opportunities.

Many capital preservation strategies only reduce the systematic risk of a portfolio , i.e. risks from movements in the entire market. According to the current state of science, lowering the systematic risk is always accompanied by a loss of profit .

The unsystematic risk , the negative development of an individual investment, on the other hand, can be limited by diversification ( portfolio selection ). The portfolio return of a portfolio corresponds to the weighted return of all securities, while the portfolio risk (with suitable security selection) is lower than the weighted risk. In this respect, there are no costs for this form of value protection.

Capital preservation strategies are divided into static and dynamic strategies. With static hedges, the structure of the portfolio is not changed or only changed once, with dynamic strategies, however, the adjustments are made depending on the market trend.

Widespread static capital preservation strategies are

Common dynamic capital preservation strategies are

See also