A study about portfolio diversification: Gold as a useful diversification tool

Financial markets have always been places of both opportunity and risk. As the financial assets become more diversified, to make investment decisions becomes more difficult for investors. As ongoing processes, globalization and digitalization allow for the integration of financial markets from all over the world. With the aim of adapting to changing economic conditions and distributing their risks, investors tend to diversify their portfolio. In this study, the performances of three different portfolios, an internationally formed benchmark portfolio and two other portfolios that were obtained by diversifying the benchmark portfolio with commodities and gold, were measured in the post-2008 Financial Crisis period. For the performance measurement of the portfolios, Sharpe Ratio calculations were made. The results of the study indicate that the portfolio diversified with gold outperforms the portfolio diversified with the commodity exchange traded fund and that the addition of gold to the portfolio increases the portfolio performance. Keywords: Portfolio Management, Modern Portfolio Theory, Sharpe Ratio, Portfolio Diversification, Risk.