# Breadth Is Not Diversification | THREAD

_Strategy Spotlight . 2026-06-30 . By Tanmay Kurtkoti. Educational, illustrative, not advice._

Pulled the factsheet on one of our higher-octane cards this weekend. A 40-stock momentum basket built from the smallest end of the market. Five-year backtest CAGR of 48.98 percent against the Nifty's 10.68. The kind of number that makes you stop scrolling.

So I scrolled one column further, to the drawdown. Minus 26.17 percent.

Here is what made me sit up. The concentrated 5-stock card on the same shelf fell less, minus 24.72. The 20-stock midcap card fell 24.87. The 40-stock basket dug the deepest hole of the three. You add 35 names and the floor drops, not rises.

That runs against everything we are taught about diversification. More holdings, less risk. Except it only works for one kind of risk.

Spreading across 40 names protects you when one of them blows up on a bad result. It does nothing when the whole mid-and-small universe sells off in the same two weeks. January and February 2025, the basket fell 10.9 then 14.1. All forty names fell together, because all forty were the same bet. Mid and small caps in a risk-off do not take turns.

The 50-stock Allcap card, drawn from the whole market instead of just the small end, actually fell less, 22.70. More names, shallower hole, because the names were genuinely different bets across the cap curve.

So the lesson I keep coming back to. Diversification is a count of bets, not a count of names. Forty tickers that rise and fall in the same week are one bet wearing forty jerseys. This card earns its place as a satellite you size small and hold through a 26 percent fall, not as the core you mistake it for because it holds forty lines.

Same Sharpe as the 5-stock card, 1.61. The breadth was a feeling, not a hedge.

The 40 holdings and the full backtest: