Reading between the lines of portfolio diversification

The fundamental logic behind diversification is based on the premise that assets are correlated to each other, either positively or negatively. This correlation between different asset classes comes efficiently into play in a diversified portfolio, which could result in a better performance that comes along with lower volatility and risk. The portfolios of some high net worth individuals are more complex and would also include real estate and other investments such as art, antiques and other such collectibles. An equity investor would not only select stocks across various sectors and industries, but also between market capitalizations and geographical markets. A smartly diversified portfolio that consists of 4-6 funds can deliver a better performance than one that is packed with funds of similar mandates.