Diversification helps mitigate risk in a portfolio from "summary" of Institutional Investment Management by Frank J. Fabozzi
Diversification is a key strategy employed by institutional investors to manage risk in their portfolios. By spreading investments across different asset classes, industries, and geographic regions, investors can reduce the impact of any single investment underperforming or failing. This is based on the principle that not all investments will move in the same direction at the same time. The main idea behind diversification is to create a portfolio that is less susceptible to market volatility and downturns. This is because different investments may react differently to changes in the market environment. For example, during economic downturns, certain industries may perform poorly while others may remain stable or even thrive. By holding a mix of investments, investors can potentially offset losses in one area with gains in another....
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