The process of adding to one's portfolio in such a way that the risk/return tradeoff is worsened.

Investors often achieve this by investing in a number of different mutual funds that have similar investment strategies within the same grouping of shares.

A diversification strategy usually involves the accumulation of assets with negative correlations, which reduces risk and can increase potential returns by minimizing the negative effect of any one asset on portfolio performance. However, investing in too many assets with similar correlations will result in an averaging effect where risk is at its lowest level and additional assets reduce potential portfolio returns as well as the chances of outperforming a benchmark.