When you properly diversify your investments, you can expect what relationship among your primary investments?

When you properly diversify your investments, you are spreading your capital across a range of assets that are not highly correlated, meaning they do not typically move in the same direction at the same time. This strategy is intended to mitigate risk because different investments can respond to market events in varied ways.

The correct understanding is that, ideally, these investments may move in opposite directions at times. For instance, when one asset class is performing poorly, another may be thriving. This counterbalancing effect helps to smooth out the overall performance of your investment portfolio and reduces the risk of significant losses. Therefore, a diversified portfolio can provide more stability and less volatility compared to holding only one type of asset.

In contrast, if all investments move together in the same direction, it creates higher risk, as poor performance in one area can adversely affect the entire portfolio. Investments moving independently or in random directions can suggest a lack of strategic correlation among those assets but do not effectively capitalize on the benefits of diversification, which is specifically intended to stabilize returns through the use of counter-cyclical movements among assets.