Explanation: Diversification allocates capital investment in a variety of stocks or other financial instruments. The purpose is to minimize risk due to exposure to any one investment or to volatility in any particular sector.
A popular adage says "Don't put all your eggs in one basket". The pain of losing one egg in a basket is bad, but the pain of losing all eggs in one basket is much worse.
It is not unusual for a single stock to go down about 50% in a year. With a diversified portfolio, the risk is minimized by investing in different stocks in different sectors of the market.
