Yet the risk reduction
provided by diversification is strictly theoretical: It depends on historical relationships between asset classes continuing into the future, and there's no guarantee that will occur.
Actuarial considerations aren't really relevant in the big picture, because all prudent banks attempt to guard their capital accounts
by diversification of credit risk and, if necessary, true insurance for things like death of the debtor.
If you are taking risk that could have been
mitigated by diversification, then you are taking unnecessary risks for which you are not being compensated.
If REIT allocation is 15 % or 20 % of the portfolio, it might be a better idea to take less unsystematic risk
by diversification in the index.
Systemic Risk Market risk due to price fluctuations which can not be eliminated
by diversification.
Trading risk is divided into two general categories: (1) Systemic risk affects all securities in the same class and is linked to the overall capital - market system and therefore can not be eliminated
by diversification.