The importance of diversifying your share portfolio

Here's why you shouldn't put all your eggs in one basket.

The ASX has been through an absolute rollercoaster of a year, losing years of progress in the span of just one month thanks to the uncertainty that came with COVID-19. Many sectors of the market have been hit in drastically different ways due to the side effects of a pandemic, such as border closures and rampant panic buying earlier in the year.

In events like these, it's no secret that every great investor spreads their investments over different asset classes and sectors – even the most notorious gamblers know the power of hedging their bets. But the general advice of "diversify your portfolio" seems to be so blindly followed - but is it important to all types of investments? Let's take a look at look at a couple of different corners of the market to not only see how they have been performing but also the importance of spreading your investments.

Banking

The banking industry has seen its fair share of stage time this year when mortgage deferrals and property prices were the talk of the town in the first half of 2020. Commonwealth Bank (CBA) had been the biggest bank on the market in terms of both market capitalisation and stock price long before COVID-19 had even entered our lives, but it's interesting to see that its share price movement is highly correlated with other banks, even though the price is much higher.