Risk diversification in the fundamental portfolio with the minimum semi-variance is the subject of consideration.  Risk in existing models of fundamental portfolio is measured by variance. One of the drawbacks of variance as a measure of risk is that negative and positive deviations from the expected rate of return are treated in the same manner. In fact, negative deviations are undesirable, while positive ones create an opportunity for a higher profit. Determination of effective fundamental portfolios for semi-variance is more complicated than for variance, because the parameters in target function for semi-variance depends of portfolio composition.  The paper aims at proposing and presenting the empirical verification of iterative algorithm for risk diversification in the fundamental portfolio with the minimum semi-variance.
The considerations are based on the taxonomic measure of attractiveness of investment – TMAI, which was first used for portfolio constructions by Tarczyński  (O  pewnym sposobie wyznaczania składu portfela papierów wartościowych in Przegląd Statystyczny 1/1995, p. 91-106). Such approach enables to present the economic and financial situation of a company with just one index.
In recent year the Tarczyński model has been used modified by introducing for example the measure of the risk into the target function and taking into account the connections between the profitability of shares ( Rutkowska - Ziarko, Alternatywna metoda budowy fundamentalnego portfela papierów wartościowych in Taksonomia 18 p. 551-559).
Due to possible correlation among diagnostic Financial variables, the Mahalanobis distance has been used to determine TMAI (Rutkowska – Ziarko, Fundamenta portfolio construction based on Mahalanobis in Distance in Studies in Classification Data Analysis, and Knowledge Organization, ed. Laesen,  Springer 2013, in press).
I addition in the present article as the measure of risk the semi-variance is used as an alternative of variance. It is observed that in comparison to the approaches used so far in the literature the proposed algorithm leads to safer portfolios in the context of downside risk.

1. FULLTEXT: The diversification of risk of a fundamental portfolio based on semi-variance, Zip archive data, at least v2.0 to extract, 0.2MB

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