BacktestFolio · Glossary
Diversification
In plain language
Don't put all your eggs in one basket: if equities and bonds don't always fall together, a mixed portfolio weathers crashes better than a concentrated one. Diversification is the only 'free lunch' in finance — it reduces risk without necessarily giving up return.
Technical definition
Principle by which combining assets with low mutual correlation reduces the total portfolio risk without proportionally sacrificing expected return. It is the foundation of Markowitz Modern Portfolio Theory (1952).