Alternative investments have less correlation to market fluctuations which helps reduce overall investment risk and allows for a well-diversified portfolio. Alternative investments include assets like commodities, private equity, and derivatives rather than just stocks, bonds, and cash. They are used to reduce risk through diversification, though analysis is important due to challenges in assessing current market values and potential for limited liquidity. Risks related to benchmarking and complexity need to be considered for alternative investments.

1. Alternative investment has less correlation coefficient. It means that it reduced
risk of investment. That’s also called as well diversified portfolio. In other words we can
say that it effect less compare to market fluctuation. Alternative investment not like
usual investment refers to those product investments which include stocks, bonds, cash
or property etc. It also refers to those fiscal assets like commodities, private equity,
funds, venture capital and other derivatives or contracts. Alternative Investments are
basically used to reduce the level of risk that comes along with diversification.
Though incase of Alternative Investments it is difficult to ascertain the present
value of market asset because there might be chances of limited risk in the process of
return data. So it becomes important to do a proper and high level of analysis before
making such investments or buying products. The price of purchase and sale might also
prove to be relatively higher. Most of these investments are made under institutional
investor.
In alternative investments, the risks related to the benchmarking and the
complexity to increase excellence index exist. Economist argues that the income of
unusual funds is commonly not very straightforward to evaluate. The Sharpe ratio
evaluation may result in defining a portfolio having a short instability and strategies.
The mainly disadvantage of these assessments is- it raises the probability of intense
failure. Mainly, the unusual savings recommended by finance managers should be
based on proper evaluation of risks and it should occupy a different class of strategies
to decrease risks. A variety of different methodologies should be used for measuring the
hazard. Although, the finance managers try to confirm that hedge funds are highly
bigger deal options, the investor should not fail to remember the hazard sources. The
whole format should be incorporated with threat monitor and organize the liquidity
necessities, while the credit value of the adviser is also significant for the investors.
References:
(http://www.redrockscapital.com/sites/default/files/Alternatives%20in%20Traditional%20Portfolios
%20Morningstar%20Reprint.pdf)
(http://www.investorscircle.net/accelsite/media/3195/Sustainability%20Trends%20in%20US
%20Alternative%20Investments%20Report.pdf )