Diversification

Diversification spreads exposure across investments or risk drivers so that one adverse event is less likely to dominate the entire portfolio.

Effective diversification considers asset class, issuer, sector, geography, currency, strategy, and liquidity rather than simply counting positions. Holdings that appeared unrelated can become highly correlated during market stress, so diversification reduces concentration risk but does not guarantee profit or prevent broad losses. The appropriate mix depends on objectives, time horizon, capacity for loss, and access needs under severe market stress.