# Diversification

`kaal:entity:diversification`

**Status.** derived

This node is assembled mechanically from the 13 claims that carry the concept tag `diversification`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

13 claims across 9 works, 2016 to 2019.

**2016**

- [2748096-023](https://wulfkaal.github.io/claims/2748096-023) [failure/evidenced] *(failure mode)* -- Strategy diversification does not insulate the hedge fund industry from systemic risk: returns across different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before it, so the industry can pose systemic risk despite investing across a broad spectrum of assets and strategies.
  > hedge fund returns should not affect their systemic risk. However, evidence exists that the returns of different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before the crisis
  Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096

**2017**

- [2959730-028](https://wulfkaal.github.io/claims/2959730-028) [predictive/argued] -- Larger managers will be incentivized to begin the innovation process if and when they realize that smaller competitors using these technologies gain substantial operational efficiencies and cost savings.
  > This, however, may change in the foreseeable future if and when larger managers realize that their smaller competitors who utilize these technologies gain substantial operational efficiencies and cost savings
  Wulf A. Kaal, Blockchain Applications and Fee Structure Developments in Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2959730
- [2998033-024](https://wulfkaal.github.io/claims/2998033-024) [mechanism/argued] -- Even though crypto investments can be as volatile as or more volatile than traditional investments, digital currencies may still serve as a hedge against traditional investments because they are not tied to equity market movements.
  > Although crypto investments can to be just as and more volatile than traditional investments, digital currencies might be used to hedge against traditional investments.
  Wulf A. Kaal, Blockchain Innovation for Private Investment Funds (2017). SSRN: https://ssrn.com/abstract=2998033
- [3002908-029](https://wulfkaal.github.io/claims/3002908-029) [mechanism/argued] -- A competing explanation for the transatlantic size gap is compositional: American blockchain funds are mostly newly created ad hoc vehicles focused exclusively on blockchain, while European ones are more established and older financial institutions.
  > American private investment funds investing in blockchain are mostly newly and ad hoc created investment vehicles, focused exclusively on blockchain. Whereas the vast majority of European private funds are more established and older financial
  Wulf A. Kaal, Marco Dell'Erba, Blockchain Innovation in Private Investment Funds - A Comparative Analysis of the United States and (2017). SSRN: https://ssrn.com/abstract=3002908

**2019**

- [3396542-025](https://wulfkaal.github.io/claims/3396542-025) [condition/argued] -- Aggregate capital under the DAO structure is lower than under a traditional corporate insurer only if the incremental risk that contingent underwriting liabilities add to agents' private portfolios is small enough; the reduction is conditional, not automatic.
  > Thus, to reiterate the main point, if the incremental risk to the private portfolios of the agents from the contingent liabilities is small enough, the sum of the individual amounts of capital the DAO agents will hold will be less than the capital requirement for a traditional corporate entity.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542
- [3396542-027](https://wulfkaal.github.io/claims/3396542-027) [mechanism/argued] -- Because each underwriter sizes capital against the risk of that underwriter's overall portfolio, and underwriting can be diversifying for a non traditional participant, the sum of the underwriters' incremental Values at Risk may be less than the Value at Risk of a single insurance firm writing the same contracts.
  > As a result, the sum of the incremental VaRs (Value at Risk amounts) of the individual underwriters may be less than the VaR of an insurance firm that has underwritten the same contracts.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542
- [3405660-006](https://wulfkaal.github.io/claims/3405660-006) [failure/evidenced] *(failure mode)* -- LTCM was diversified across markets but not across strategy, so its positions failed together; market level diversification does not imply strategy level diversification.
  > It became obvious that while the fund was diversified in terms of markets, its overall strategy was not diversified.
  Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660
- [3406323-027](https://wulfkaal.github.io/claims/3406323-027) [design/argued] -- Democratized decentralized underwriting is more secure and stable than centralized underwriting because diversifying lenders and underwriters adds liquidity in all states of the economy and silos losses so that there is less cascading during economic crises.
  > it diversifies lenders and underwriters, which adds liquidity in all states of the economy; 2. this diversity silo losses so there is less cascading during economic crises;
  Wulf A. Kaal, Decentralization - A Primer on the New Economy (2019). SSRN: https://ssrn.com/abstract=3406323
- [3409548-007](https://wulfkaal.github.io/claims/3409548-007) [mechanism/asserted] -- Machine learning improves portfolio diversification by searching for instruments that are uncorrelated with each other and that still match the requirements of the target risk profile.
  > ML can help in accurate portfolio diversification by looking for uncorrelated instruments that match requirements of the risk profile.
  Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548
- [3409548-029](https://wulfkaal.github.io/claims/3409548-029) [condition/argued] -- Digital currencies can serve as a hedge against traditional investments even though crypto investments can be as volatile as or more volatile than traditional ones, because they are not tied to the vicissitudes of the equity markets.
  > Although crypto investments can be just as and more volatile than traditional investments, digital currencies might be used to hedge against traditional investments.
  Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548
- [3409548-030](https://wulfkaal.github.io/claims/3409548-030) [mechanism/argued] -- Crypto hedge funds deliver diversification by giving investors exposure to a wide range of digital currencies without the risk of investing in either the underlying organization behind a protocol or the digital currency itself.
  > Such funds provide investors with exposure to a wide range of digital currencies without the risk of investing in either the underlying organization behind a protocol or the digital currency itself.
  Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548
- [3409548-031](https://wulfkaal.github.io/claims/3409548-031) [empirical/argued] *(failure mode)* -- The shift of the digital asset market back from the ICO model to the venture model since late 2017 has reduced, not increased, diversification for investors.
  > Since late 2017, the market for digital assets has moved back from the ICO model to the venture model, leading to less diversification.
  Kaal, Financial Technology and Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3409548
- [3411110-029](https://wulfkaal.github.io/claims/3411110-029) [mechanism/argued] -- The SEC's reasoning against the Bitcoin ETF does not transfer to blockchain based private investment funds such as those built on Melonport, because such funds trade a diverse array of cryptocurrencies and reach a much more limited and accredited audience, which curtails investor risk.
  > Moreover, the audience of a Melonport-type fund is much more limited and curtails the risk to investors.
  Wulf A. Kaal, Samuel Evans, Blockchain-Based Securities Offerings (2019). SSRN: https://ssrn.com/abstract=3411110

## Verify

Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust.

    curl -s https://wulfkaal.github.io/entities/diversification.md | sha256sum

**Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.