Portfolio Diversification Strategy and It’s Effects on the Portfolio Performance in Indonesian Capital Market

Abstract

This research aims to analyze the portfolio performance based on diversification strategy in one and multi sectors in Indonesia’s capital market. The philosophy underlying the diversification strategy in one sector is "too much of a good thing is wonderful", which means the amount of stocks to be observed and monitored will be less, so that attention and analysis of the selected stocks will be more profound. The sampe was collected from go-public companies listed on the Indonesia Stock Exchange (BEI) and the Indonesia capital market, and traded actively in the period of 2011 to 2015. The data analyzed using a variety of tools to measure the performance of the stock portfolio (portfolio return, risk, and risk-adjusted return), Warren Buffett financial performance, and discriminant test of Independent Sample t-test. The results indicate no difference between performance of stock portfolio in one sector and in multi sectors in the Indonesian capital markets. This can be explained that the diversified portfolios from various stocks of multi sectors will show the same performance with portfolios on various stocks in one sector.

Keywords: portfolio diversification strategy, one sector and multi sector stocks, stock portfolio performance.