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Risk management.

Diversification is the process of spreading risk to limit the possibility that a single adverse event could have a catastrophic effect.

Often referred to as 'Don't put all your eggs in the same basket'.

In corporate finance, the term is often used to mean the process of ensuring that an investment portfolio is constructed such that all possible specific risk (diversifiable risk) is eliminated.

Diversification is a form of risk reduction.

However, some residual risks cannot be eliminated by diversification.

See also