Diversification means spreading money across different assets, sectors and regions so that no single failure can be decisive.
It does not remove risk and it does not prevent losses when markets fall broadly. What it removes is the specific risk of any one company or sector — the kind that is uncompensated, because you are not paid extra for concentrating in a single stock. The practical implication is that a diversified position is boring by design: it will never be the best performer in a given year, and it will also never be the worst.