PortDiversification: What Is It?
Spreading capital so that the outcome does not depend on a single event.
Explanation
It's not about the number of positions, but whether they react to different things. Ten companies from the same industry usually fall together—that's effectively one position multiplied by ten.
You can diversify by industry, country, currency, and asset class. Each of these dimensions works independently: a portfolio of stocks from around the world is still entirely an equity portfolio.
Example
A portfolio of five tech companies and a portfolio of five companies from five different industries have the same number of positions but completely different risk profiles.
Related Terms
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