Holding many shares rather than one removes company-specific risk. Holding different asset classes (shares, bonds, cash, property, commodities) and regions reduces the risk further, because they respond differently to the same events.
What matters is correlation: how closely two investments move together. Adding an asset that often moves the opposite way cuts portfolio volatility even if the asset is volatile itself.
Why it matters
Correlations rise in a crisis, when many risky assets fall together, so diversification helps less exactly when it is most wanted. Government bonds and cash have historically been the most reliable diversifiers for shares in recessions.
General information, not advice.