Term

Diversification

Spreading capital across assets that don't move together to reduce risk.

Diversification lowers portfolio risk without necessarily lowering expected return, by combining assets whose returns are imperfectly correlated. It is the closest thing to a free lunch in investing.

True diversification is about how assets behave together, not how many you own. Holding twenty things that all fall at once is concentration in disguise. The benefit comes from combining exposures that respond differently to the same shock, which is why correlation matters more than count.

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