Portfolio Construction Theory

Biological Parallel

Tallgrass prairies don't rely on one species—they combine C3 grasses (cool-season), C4 grasses (warm-season), nitrogen-fixers, and deep-rooted forbs. When drought stresses C4 plants, C3 species compensate. When fire hits, deep roots regenerate. This portfolio effect stabilizes productivity across disturbances better than monocultures. Markowitz's portfolio theory applies identical diversification: uncorrelated assets reduce volatility not by eliminating risk, but by ensuring some components thrive in any condition.