A diversification strategy is a business approach that involves expanding a company's operations into new markets or product lines. This can help reduce risk by spreading investments across different areas, so if one sector underperforms, others may still thrive. Companies often pursue diversification to enhance growth opportunities and increase overall stability. There are two main types of diversification: related diversification, where a company expands into areas that are similar to its existing business, and unrelated diversification, where it ventures into completely different industries. By employing a diversification strategy, businesses aim to achieve a balanced portfolio and improve long-term profitability.