Diversification is a strategy used by investors and businesses to reduce risk by spreading investments or activities across different assets, industries, or markets. The goal of diversification is to minimize the impact of adverse events or fluctuations in one particular investment or area of business by having exposure to a variety of assets or activities.

In the context of investing, diversification involves building a portfolio that includes a mix of different types of investments, such as stocks, bonds, real estate, and commodities, as well as assets within each category. By diversifying across different asset classes and sectors, investors can reduce the risk of significant losses if one investment performs poorly, as gains in other investments may offset losses.

Similarly, in business, diversification involves expanding into multiple product lines, markets, or geographic regions to reduce reliance on a single source of revenue or market segment. This can help businesses withstand economic downturns, changes in consumer preferences, or disruptions in specific industries.

Diversification does not eliminate risk entirely, but it can help manage and mitigate risk by spreading it out over a broader range of investments or activities. However, it’s essential to balance diversification with other factors such as investment goals, time horizon, and risk tolerance to create a well-rounded and effective investment or business strategy.