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Diversification is a risk management strategy that involves spreading investments across various asset classes, sectors, or geographic regions to reduce exposure to any single investment's volatility. By diversifying, investors aim to minimize potential losses, as different assets often react differently to market conditions. This approach can lead to more stable returns over time, as the positive performance of some investments can offset the negative performance of others. However, it does not guarantee profits or protect against losses in a declining market.

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