1. the act or process of diversifying; state of being diversified.
2. the act or practice of manufacturing a variety of products, investing in a variety of securities, selling a variety of merchandise, etc., so that a failure in or an economic slump affecting one of them will not be disastrous.
Relying on Webster doesn’t provide much help to investors wanting to learn about diversification. Diversification is a free lunch! I do not know who said that, but I certainly agree with it. However, let me expound on some misunderstandings regarding diversification and a related concept known as multicollinearity. Chart A (Diversification Works) and Chart B (Until it Doesn’t) speak for themselves and I have shown similar ones a few times before, but the message is always strong.