Harry Markowitz · 1990 laureate
Portfolio Selection (1952)
The direct foundation: combining assets whose returns do not move together can reduce portfolio variance without proportionally reducing expected return.
Portfolio Diversification Lab
Why a portfolio rides calmer than the shares inside it
Each thin line is one simulated share. The thick line is your portfolio. Change the horizon, weights and market conditions and watch how much of the individual drama disappears at the portfolio level.
Start from a ready-made portfolio
20 shares vs the portfolio
Everything starts at 100. Horizon: 1 month.
Portfolio (equal weights) Individual shares
Average share volatility
29.6%
annualised, as realised
Portfolio volatility
17.3%
annualised, as realised
Diversification benefit
41%
smoothing from diversification
Portfolio return (1 month)
-0.4%
shares ranged -13% to +8%
Expected return (per year)
+30.0%
what the holdings are built to deliver
Achieved return (per year)
-4.8%
annualised over 1 month
Maximum drawdown, portfolio
-7.0%
worst peak-to-trough fall
Maximum drawdown, average share
-9.1%
worst peak-to-trough fall
AI explanation
Get a plain-English summary of the current scenario, its risks and what diversification is doing.
Stress test your portfolio
Apply an illustrative shock to the same holdings and horizon. These are scenarios, not forecasts.
The same portfolio over three horizons
Identical holdings and settings, simply held for longer. Tap a panel to make it the main chart.
Every holding, side by side
| Holding | Expected growth | Weight | Volatility | Return | Worst dip |
|---|---|---|---|---|---|
| Stock 1 | +21.0% | 5.0% | 19.5% | -5.7% | -11.5% |
| Stock 2 | +21.9% | 5.0% | 20.6% | +4.3% | -3.3% |
| Stock 3 | +22.9% | 5.0% | 21.7% | -1.1% | -6.6% |
| Stock 4 | +23.8% | 5.0% | 22.8% | +6.5% | -2.0% |
| Stock 5 | +24.8% | 5.0% | 23.9% | -1.2% | -6.5% |
| Stock 6 | +25.7% | 5.0% | 25.0% | -12.8% | -15.6% |
| Stock 7 | +26.7% | 5.0% | 26.1% | -5.9% | -13.4% |
| Stock 8 | +27.6% | 5.0% | 27.2% | +7.5% | -5.4% |
| Stock 9 | +28.6% | 5.0% | 28.3% | -0.8% | -10.8% |
| Stock 10 | +29.5% | 5.0% | 29.4% | +1.6% | -6.7% |
| Stock 11 | +30.5% | 5.0% | 30.6% | -1.0% | -15.2% |
| Stock 12 | +31.4% | 5.0% | 31.7% | +4.8% | -6.8% |
| Stock 13 | +32.4% | 5.0% | 32.8% | -8.1% | -15.3% |
| Stock 14 | +33.3% | 5.0% | 33.9% | +2.4% | -9.5% |
| Stock 15 | +34.3% | 5.0% | 35.0% | +3.6% | -6.3% |
| Stock 16 | +35.2% | 5.0% | 36.1% | +0.7% | -9.7% |
| Stock 17 | +36.2% | 5.0% | 37.2% | -10.5% | -15.0% |
| Stock 18 | +37.1% | 5.0% | 38.3% | -5.0% | -8.5% |
| Stock 19 | +38.1% | 5.0% | 39.4% | +8.4% | -6.7% |
| Stock 20 | +39.0% | 5.0% | 40.5% | +3.8% | -7.7% |
| Portfolio | +30.0% | 100.0% | 17.3% | -0.4% | -7.0% |
Controls
Portfolio weights
Choose an even split or set your own allocation.
Number of shares20
More holdings smooth the portfolio line — with fast diminishing returns.
Correlation between shares0.30
Near 1 the shares move as one and diversification stops working.
Average volatility30%
How jumpy a typical share is, per year.
Volatility spread35%
0 means every share is equally jumpy; higher mixes calm and wild names.
Average expected growth+30%
Long-run drift per year before the ups and downs.
Growth spread30%
How much winners and laggards differ in expected growth.
Correlation does the heavy lifting
When shares drift apart, one falling while another rises, their wobbles partly cancel. Push the correlation slider toward 1 and the lines collapse onto each other — the portfolio then swings just as much as a single share.
More holdings help, then stop helping
Going from 15 to 25 shares cuts the portfolio's swings sharply. Going from 30 to 40 barely moves the number: the shared market risk that remains cannot be diversified away.
Time smooths the ride, not the risk
Switch to 1 year and 3 years. Growth compounds and the path looks steadier relative to the total gain, while day-to-day volatility stays the same. Longer horizons give the drift time to dominate the noise.
Research foundations
Nobel-prize-winning ideas behind diversification
This learning tool draws most directly on modern portfolio theory. The wider literature below shaped how investors understand diversification, risk and expected return.
William F. Sharpe · 1990 laureate
Capital Asset Prices (1964)
Extended portfolio theory into an equilibrium model linking expected returns to market-wide, non-diversifiable risk.
James Tobin · 1981 laureate
Liquidity Preference as Behavior Towards Risk (1958)
Showed how investors can separate the choice of a diversified risky portfolio from their preferred balance between risk and safety.
Eugene F. Fama · 2013 laureate
Efficient Capital Markets (1970)
A broader foundation for passive investing: market prices rapidly incorporate information, making consistent stock-picking outperformance difficult.
Nobel recognition: 1990 prize, 1981 prize, and 2013 prize.
Want this checked on your own portfolio?
Campaign for a Million offers a free review of your portfolio and pensions, or a direct call.
Every number here is simulated with a random-walk model, not real market data. It is for illustrating how diversification behaves, not investment advice.