The act or practice of including
securities in different industries in one's
portfolio. This is done to reduce
systemic risk. For example, if one includes both Industry A and Industry B
stocks in one's portfolio, and most Industry A companies go bankrupt, this will not necessarily affect Industry B stocks. Industry allocation thus increases the possibility of making a
profit, or at least avoiding a
loss. This may also reduce the expected
return on a portfolio, but it depends on the level and type of diversification. In general, the broader the industry allocation, the less
risk and the less return. See also:
Horizontal diversification,
Vertical diversification.