Spreading your investments across different assets reduces risk without necessarily sacrificing returns. Learn how to build a resilient portfolio.
Diversification is the practice of spreading your investments among different financial assets, sectors, and geographies to reduce exposure to any single source of risk. The goal is to smooth out returns so that a sharp drop in one area doesn't devastate your entire portfolio.
The famous saying "don't put all your eggs in one basket" captures the idea perfectly. If you drop one basket, you still have eggs in the others.
Correlation measures how two investments move in relation to each other. It ranges from -1 to +1.
By combining assets with low or negative correlation, you can reduce overall portfolio volatility while maintaining expected returns.
Stocks, bonds, real estate, commodities, cash. Each behaves differently under various economic conditions.
Technology, healthcare, energy, consumer goods, etc. Don't let one industry sink your portfolio.
Domestic vs. international stocks. Different countries have different growth cycles.
See how combining two assets with different expected returns and risks affects your portfolio. Adjust the allocation and correlation to find the optimal mix.
Adjust the sliders and click calculate.
The lower the correlation, the greater the risk reduction. Perfect negative correlation (-1) can theoretically eliminate risk, but it's rare in real markets.