Here's a simple illustration of why diversification is considered "good" in general. If you think of your portfolio as a weighted average of returns, the varian

Here's a simple illustration of why diversification is considered "good" in general. If you think of your portfolio as a weighted average of returns, the variance of the portfolio decreases as you add uncorrelated assets (i.e. diversify)[0]. In the simplest case, imagine two assets with the same expected return whose returns are uncorrelated. If you don't believe in stock-picking ability, diversifying between the two is a good idea. When you try to be more sophisticated about this, you get modern portfolio theory. [0] https://en.wikipedia.org/wiki/Variance#Sum_of_uncorrelated_variables_.28Bienaym.C3.A9_formula.29 https://en.wikipedia.org/wiki/Variance#Sum_of_uncorrelated_v...