What is the difference between asset allocation and diversification in investment portfolios?

Asset allocation refers to the strategy of dividing investments among different asset classes, such as stocks, bonds, and cash, to manage risk and achieve specific goals. Diversification, on the other hand, involves spreading investments within each asset class to further reduce risk by not putting all eggs in one basket. In essence, asset allocation focuses on the big picture of where to invest, while diversification focuses on spreading investments within those chosen areas.