10.3390/risks8020051 Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction http://orcid.org/0000-0002-4267-9600 Shao Xue-Feng Dr. Discipline of International Business, The University of Sydney, Sydney, NSW 2006, Australia xuefeng.shao@sydney.edu.au Gouliamos Kostas Dr. Department of Management and Marketing, School of Business Administration, European University Cyprus, 1516 Nicosia, Cyprus k.gouliamos@euc.ac.cy Luo Ben Nan-Feng Dr. School of Labor and Human Resources, Renmin University of China, Beijing 100872, China nanfeng.luo@ruc.edu.cn http://orcid.org/0000-0003-1498-0188 Hamori Shigeyuki Dr. Graduate School of Economics, Kobe University, 2-1 Rokkodai, Nada-Ku, Kobe 657-8501, Japan hamori@econ.kobe-u.ac.jp Satchell Stephen Dr. Discipline of Finance, The University of Sydney, Sydney, NSW 2006, Australia Trinity College, University of Cambridge, Cambridge CB2 1TQ, UK ses999gb@yahoo.co.uk http://orcid.org/0000-0002-3004-6961 Yue Xiao-Guang Dr. Department of Management and Marketing, School of Business Administration, European University Cyprus, 1516 Nicosia, Cyprus Center for Research and Innovation in Business Sciences and Information Systems, Polytechnic Institute of Porto, 4610-156 Felgueiras, Portugal Rattanakosin International College of Creative Entrepreneurship, Rajamangala University of Technology Rattanakosin, Nakhon Pathom 73170, Thailand x.yue@external.euc.ac.cy Qiu Jane Dr. Australian Graduate School of Management, University of New South Wales, Sydney, NSW 2031, Australia janeq@unsw.edu.au 22 05 2020 8 2 14 05 2020 e51 A longstanding objective of managers is to reduce risk to their businesses. The conventional strategy for risk reduction is diversification; however, evidence for the effectiveness of diversification remains inconclusive. According to Organizational Portfolio Analysis, firms are viewed as portfolios of business units, and the key to risk reduction is both diversification and synchronization compensation. This study introduces “desynchronicity”, a process that operationalizes synchronization compensation by assessing the degree of correlation between income streams of business units. Two samples of 737 and 332 firms (from COMPUSTAT) were used to empirically test the relationships between diversification and risk, and desynchronicity and risk. The results show that diversification alone will not always lead to a lower corporate risk. To reduce risk, firms also need to consider the desynchronicity of their business portfolios. Other practical implications include improved decisions on portfolio composition. © 1996-2020 MDPI (Basel, Switzerland) 2020 This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited risk reduction determinants product diversification synchronization compensation improved portfolio decisions Risks Risks 2227-9091 MDPI