Diversification, as defined by the experts, is a risk management process of allocating capital in a way to reduce overall risk by investing in a variety of assets.

Before asking what financial risk truly means to you but let us first introduce what majority of the finance industry believes risk to be.

Here is a short excerpt adapted from Investopedia:

“Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns…”

CAPM is frequently used in pricing models which supposed to show a linear relationship between risk, defined as beta, and returns. They believe that with the greater risk taken, there should be greater returns. A portfolio manager should then be expected