The basics of diversification

Diversification has TWO components…

  • Multiple Investments – a well diversified portfolio must own multiple investments. This tends to be obvious.
  • …that do not move up and down together – the multiple investments must have different performance behavior (measured by correlation) and not always move up and down together. This is often forgotten by investors.

*Multiple investments that all move up and down together provide no diversification benefits.

1000's of securities in a portfolio

Patton's Super-Diversified Portfolios a diversified across many asset classes primarily via low cost index funds holdings, in aggregate, 1000's of individual securities. These portfolios are extremely well diversified.

List of Funds

Asset ClassFund SymbolNumber of Securities
Source: Steele Mutual Fund Expert Database

Low correlation is the key to diversification

Diversification is about having multiple investments that do NOT always move up and down together, technically those with low correlation. Correlation simply measures how closely two things move together. A correlation of 1.0 means that they ALWAYS move the SAME way at the same time, -1.0 means that ALWAYS move the OPPOSITE of one another, and a correlation of 0 means that their movements are entirely random from one another (the performance of one does not tell us anything about the performance of the other). A well-diversified portfolio is one with investments that statistically have low or no correlation.


Select Report Period

Asset DescriptionS&P 500
Source: see disclosure