Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, geographical regions, or asset types to reduce risk and achieve a higher return. The principle behind the strategy is that different assets perform differently in different market conditions. Therefore, if an investor’s portfolio is diversified, a loss in one investment may be balanced by a gain in another. Diversification can help minimize the volatility of a portfolio, reduce the risk of investment loss, and improve potential returns.