Diversification involves investing in various assets and asset classes instead of focusing on any one asset to limit the risk exposure from any one asset.
Suppose you invest only in one company or only in companies from a particular sector. Then, if that company or sector faces a crisis, your entire portfolio might go down in value. But, if you spread your investments across sectors, market cap categories, and locations, the risk of your portfolio going down in value due to a crisis affecting any specific sector, market cap category or location is lowered.
