According to statistics, by holding a higher number of stocks, the portfolio variance will be lower. Thus, the risk of the entire portfolio is brought down. Researchers have said that 30 stocks, or even 18 stocks, is all you need to get the effect of diversification.
In 1970, Lawrence Fisher and James H. Lorie did a study "Some Studies of Variability of Returns on Investments In Common Stocks", which was published in The Journal Of Business. They showed that a randomly created portfolio of 32 stocks could reduce the distribution by 95%, compared to a portfolio of the entire New York Stock Exchange.
However, is it entirely true that you just need 32 stocks to be within 95% of the market?
