A technique for the identification and assessment of potential risks and combines a diverse array of investments or assets in a portfolio. The justification is that fluctuations in the value of single holding will have smaller negative impact as a part of a diversified portfolio. In this way, diversification reduces the overall risk of the investments. As asset classes behave in different ways under different market conditions, having a diversified asset mix will ensure that your portfolio is protected at least to some degree in falling markets. This is where asset allocation is key.