An investment strategy designed to manage risk. Components of the portfolio are mixed with securities of varying characteristics unlikely to all fluctuate in the same direction. The idea behind the technique is that the portfolio as a whole will produce more stable and consistent yields, while posing lower risk than any individual components within the portfolio

Diversification strives to remove idiosyncratic risks associated with individual securities. For example, take an investor who is confident in the overall oil industry, but unsure about individual oil firms. That investor may invest into numerous oil firms, if well diversified she would profit as the industry as a whole grows while reducing exposure to the whims of individual stocks.