Portfolio diversification

The benefit of diversification depends on how returns move together, not simply on the number of holdings. A collection of highly correlated investments can remain concentrated. Company-specific risk can be reduced across suitable assets, while a market component generally remains. Portfolio expected return is a weighted average, but portfolio variance also depends on covariances or correlations. Corporate diversification can have strategic benefits and costs distinct from an investor diversifying a securities portfolio. It does not guarantee profit or remove the need to understand each exposure.