Spreading trades across different sectors to avoid concentrating in one part of the market.
What real diversification is
Diversification (Diversification) spreads capital across assets that don't fall together, so one mistake or one event can't wipe out the whole portfolio. The honest measure is correlation, not count. Ten assets that move together are one big bet.
Across what
Across sectors (not just tech), asset classes (stocks, bonds, safe havens and cash), factors (growth, value and size), and time (enter in stages, not all at once at a peak of enthusiasm). Each axis breaks a different kind of co-movement.
Its honest limits
In broad crises the correlations of risky assets move toward 1. Diversifying inside one asset class helps on ordinary days and fails in big storms. Deeper protection needs things outside the class: cash, safe havens and genuinely negative correlation.
Hypothetical example
Two portfolios of twenty stocks. The first is spread over eight sectors with an average correlation of 0.45. The second is "spread" over twenty tech names with a correlation of 0.88. In a sharp sector correction the first bleeds from a cut and the second from an artery, with the same number of stocks.
Common mistake
Over-diversification: forty small positions, and the owner doesn't know half of them. You get index returns for stock-picking effort. Diversification is a tool for cutting correlation, not a goal to pile up.
Its stated limit
Diversification lowers company-specific and sector risk, but it does not lower market risk itself. In broad selloffs correlations rise toward 1 and assets fall together, which is exactly the day you wanted protection. So real diversification is measured by correlation, not by the number of names: twenty tech stocks make a concentrated portfolio, not a diversified one.
Where to see it on the platform
The Correlation Matrix shows the real co-movement in your portfolio, and the sector comparisons show how you are actually spread across sectors.
The correlation matrix shows the actual relationships between assets, so diversification is measured by a number, not an impression.
