What is Diversification?
Spreading money across assets that don’t move in perfect lockstep, so their ups and downs partly cancel and total risk falls.
Educational — not investment advice
Diversification is the closest thing to a free lunch in investing. Because assets with low correlation don’t all fall together, a mix can be less volatile than its individual parts without giving up their average return. The less the assets agree, the more risk cancels out.
It works across positions, sectors, geographies and asset classes — the goal is exposure to different drivers, not just a longer list of tickers.
The trap most people miss
Owning many things that secretly move together isn’t diversification. In a crisis, correlations spike toward 1 and assets that looked independent fall in unison — exactly when you needed the cushion most.
Frequently asked about Diversification
How many stocks do I need to be diversified?
Much of the benefit arrives by ~20–30 well-chosen, low-correlation names — but count matters less than whether they share the same underlying drivers.
Can you over-diversify?
You can dilute conviction and just replicate the index at higher cost. The aim is different drivers, not maximum ticker count.
Related terms
Guides that use Diversification
In Tradune: check how your holdings actually move together.
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.