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Portfolio diversification is a risk management strategy that involves allocating investments across a variety of assets to minimize exposure to any single asset or risk. It aims to reduce overall portfolio volatility and increase potential returns by spreading investments across different asset classes, such as stocks, bonds, real estate, and commodities. Diversification helps to protect against market fluctuations and unexpected events that may negatively impact a single investment. By diversifying a portfolio, investors can potentially enhance long-term returns and achieve a more balanced and stable investment strategy.