Definition ∞ Strategic diversification is an investment approach that allocates capital across various asset classes to reduce overall portfolio risk. This method aims to mitigate the impact of adverse price movements in any single asset by combining holdings that respond differently to market conditions. It involves careful selection of assets based on their correlation, volatility, and growth potential. Effective diversification can enhance long-term returns while controlling downside exposure.
Context ∞ In the digital asset market, strategic diversification often involves holding a mix of Bitcoin, altcoins, stablecoins, and potentially tokenized traditional assets. Investors frequently assess their diversification strategies in response to market cycles and regulatory changes. News articles often discuss how institutional investors are using diversification to manage the volatility inherent in crypto markets.
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