• Diversification is a risk management technique that spreads the risk of loss across multiple projects, products, areas, or markets. This method is important because financial returns from different businesses are not always directly correlated, so when one activity has a low return, another activity is likely to have a higher return. For example, many farms in the Midwest grow both soybeans and corn. By producing both crops rather than just one, the farm is less likely to experience wild income fluctuations because the market prices of the two crops do not always fluctuate in the same way. For example, for the year, low yields and incomes from soybeans can be offset by relatively high yields from corn. An example of financial diversification is investing in stocks, bonds, and treasury bills to reduce overall financial risk.