Why Diversification Works
Different assets respond differently to market conditions.
When some investments decline, others may hold steady or increase.
This reduces overall portfolio volatility—the ups and downs are smoothed out.
Types of Diversification
Asset class diversification: stocks, bonds, real estate, commodities.
Geographic diversification: domestic vs international markets.
Sector diversification: technology, healthcare, financials, etc.
Company size diversification: large-cap, mid-cap, small-cap.
Measuring Diversification
The Herfindahl Index (HHI) measures portfolio concentration.
Lower HHI indicates better diversification.
Our portfolio risk tool calculates this automatically for your holdings.
