Diversification
Add holdings and watch the range of outcomes narrow, both ways.
For educational purposes only. Simplified illustrations to help you understand how things work. Not financial, investment or tax advice, and not a recommendation.
IndependentMove in lockstep
Chance of a big loss (worse than -15%)26%one holding: 26%
Chance of a big gain (better than +30%)26%one holding: 26%
One holding: the widest range of outcomes, with big wins and big losses equally possible.
Dashed curve: a single holding. Risk shared by everything (the market) never fully disappears.
- More holdings narrow the range of outcomes
- It cuts big losses and big gains together
- Holdings that move together diversify less
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