Diversification is an investment strategy aimed at reducing risk by spreading investments across a variety of assets, industries, and geographic locations. By diversifying, investors aim to reduce the impact of the performance of any single investment on their portfolio. This helps to minimize the risk of losses from any one security, sector or market and provides the potential for a more stable return over time. Diversification is a key principle of modern portfolio theory and is often used in conjunction with asset allocation to manage risk in an investment portfolio.