Diversification is a term which is generally related to investment decisions and it is related to allocating of the investments into different types of assets so that the risk related to the portfolio is minimised.
Diversification is done in order to eliminate the unsystematic risk associated with the portfolio because only the firm specific risk can be eliminated with the process of diversification. Diversification will not lead to elimination of systematic risk associated with a Portfolio, because market risk are not controllable in nature.
so it can be said that diversification is a process which is followed by the Investor by allocating into different asset classes in order to minimise the risk and maximize the rate of return.
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