Diversification works only when correlation is low. Ten stocks in one sector are not diversified. Stocks, bonds, commodities, and currencies across different trends can be.
For active traders, diversification can also mean strategy diversification: a trend strategy and a mean-reversion strategy that make money in different regimes.
Example: a portfolio of 20 large-cap US stocks fell about as much as the index in 2022 because they were all the same bet on US equities. Adding managed futures or short-term bonds would have changed the outcome.
Related: correlation, portfolio-heat, hedge, sector-rotation