Two assets may still mean one risk
Scenario: You put up 1,000 USDT, spending 500 USDT on Asset A and 500 USDT on Asset B. Because you have two names, you consider the money “already diversified.” The only thing you can confirm is that each accounts for 50% of the total; you haven’t yet shown that they have different sources of risk.
The mistake is counting the assets without asking what could make them fall together. Suppose both are affected by the same kind of market sentiment, and each drops 20% when sentiment weakens. Ignoring fees, your 1,000 USDT would become 800 USDT—a loss of 200 USDT. Having two names didn’t split up that loss. This is only an educational calculation; it doesn’t mean that any two real-world assets will necessarily move in sync.
What should you change? Before buying, write one sentence for each asset answering, “What is it most vulnerable to?” If both answers point to the same source of risk, note them as “two exposures to the same risk.” Your diversification judgment is valid only if the two are genuinely affected by different factors. Make a table for the two assets you’re thinking of buying and first check whether your answers overlap.
Scenario: You put up 1,000 USDT, spending 500 USDT on Asset A and 500 USDT on Asset B. Because you have two names, you consider the money “already diversified.” The only thing you can confirm is that each accounts for 50% of the total; you haven’t yet shown that they have different sources of risk.
The mistake is counting the assets without asking what could make them fall together. Suppose both are affected by the same kind of market sentiment, and each drops 20% when sentiment weakens. Ignoring fees, your 1,000 USDT would become 800 USDT—a loss of 200 USDT. Having two names didn’t split up that loss. This is only an educational calculation; it doesn’t mean that any two real-world assets will necessarily move in sync.
What should you change? Before buying, write one sentence for each asset answering, “What is it most vulnerable to?” If both answers point to the same source of risk, note them as “two exposures to the same risk.” Your diversification judgment is valid only if the two are genuinely affected by different factors. Make a table for the two assets you’re thinking of buying and first check whether your answers overlap.