Diversification
Diversification is spreading exposure across less correlated markets to reduce drawdown risk and stabilize results.
Definition
Diversification is allocating risk across positions that do not all depend on the same outcome drivers. The goal is to reduce variance and protect your bankroll.
Why it matters
Diversification reduces the chance that one narrative or one event wipes out your month. It is most valuable when combined with disciplined position sizing and awareness of correlation.
Practical guidance
• Diversify across independent event types, not just different tickers.
• Treat correlated markets as one combined exposure.
• Do not diversify into thin markets if execution risk is high.
Common pitfalls
False diversification: Many positions, one driver.
Diversifying into bad liquidity: Low liquidity can add hidden cost.