Glossary · from the DESK dictionary
Diversification
Spreading investments across different assets to reduce a portfolio's overall risk.
In plain words
"Don't put all your eggs in one basket" — probably the best-known principle of investing.
In more detail
Diversification works because not-perfectly-correlated assets don't move in the same direction at the same time — this can reduce a portfolio's overall risk without necessarily lowering expected return.
Example
A portfolio of stocks, bonds, and commodities is typically less volatile than one made up of a single asset class.
What it means for traders
One of the most fundamental concepts in modern portfolio management.
Common pitfalls
During extreme crises, correlations between asset classes can rise unexpectedly, reducing the diversification benefit.
Related terms
Asset Allocation · Diversifiable Risk · Diversified Portfolio · Efficient Frontier · Geographic Diversification · Correlation · Sharpe Ratio
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.