Diversification

Diversification is a risk management technique that involves combining securities with less-than-perfectly-positive correlation in order to reduce the overall risk of the portfolio. This approach to diversification was introduced by Harry M. Markowitz in his ground-breaking 1952 paper, Portfolio Selection.

The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.