This paper extends the discussion of the effect of both banking activity diversification and geographical diversification on bank. Specifically, the paper examines the effect of diversification on bank performance and risk. Herfindahl-Hirschman indices (HHIs) are used to measure the level of diversification and a number of risk and performance measures are tested including Tobin’s q, annualized stock returns and total risk. The results suggest that the type of diversification can have varying impacts on both performance and risk. Specifically, banks focusing their activities experience higher level of performance than those banks diversifying their activities. Banks which are more geographically focused, however, have lower level of performance. In addition, banks with an activity focus or those that are geographically diversified also experience higher level of risk. The results are consistent with the risk-return tradeoff associated with the portfolio theory. These results have poten