The Evolution of Portfolio Diversification: Modern Strategies in Risk Management and Investment Performance in the Digital Era

Abstract

This study aims to analyze the relationship between portfolio diversification, risk management, and investment performance within the evolving context of the modern global economy. Employing a descriptive qualitative approach based on a systematic literature review, this research examines several indexed academic sources from the past five years to provide a comprehensive understanding of the effectiveness of diversification in the digital era. The findings reveal that diversification plays a crucial role in reducing systematic risk and enhancing the stability of investment returns across sectors and asset classes. The integration of technology particularly artificial intelligence and machine learning further strengthens the effectiveness of diversification strategies by improving the accuracy of risk assessment and enabling adaptive portfolio optimization in response to market fluctuations. Moreover, the rise of digital assets such as cryptocurrencies has expanded the global scope of diversification, introducing a new dimension to risk management. These findings confirm that diversification has evolved into an adaptive, dynamic, and sustainable strategy for future investment decision-making.