Diversification is one of the most powerful risk mitigation tools available to investors.  When done correctly, it may actually be the only free lunch available to investors.  Doing it effectively isn't always easy though.

In an ideal diversification scheme, the returns of the portfolio constituents will be lowly correlated with one another.   Said another way, when one zigs the other zags.   While adding two assets that move in similar fashion can diversify certain types of risk away, it doesn't do much for reducing the overall volatility of a portfolio.

The question is then, what is the proper diversification scheme?  I was exploring around on coingecko.com and found where they have mapped many of the coins into functional sub-categories.  Below I've pasted a screenshot and I'm also including a link below.  

I have not crunched the numbers yet to see whether these categories would actually be effective from a diversification perspective but will do so in the coming weeks.   It may be that there's no real diversification benefits in these categories so before adopting this approach, I would do your own research.

In the meantime, would love to hear your diversification strategy in the comments!

Cheers,

NZFX