Definition ∞ Investment portfolio diversification is a strategy employed by investors to reduce risk by allocating capital across a variety of assets, asset classes, and investment types. The goal is to minimize the impact of poor performance from any single asset on the overall portfolio. In the digital asset space, this involves distributing investments across different cryptocurrencies, stablecoins, and decentralized finance protocols. It aims to smooth returns and mitigate volatility.
Context ∞ Discussions around investment portfolio diversification increasingly include digital assets as a new component for risk management and return potential. News often covers how cryptocurrencies correlate with traditional assets and their role in a balanced portfolio. The challenge for investors involves understanding the unique risk profiles of various digital assets and integrating them effectively into a broader investment approach.
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