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While the insurance hypothesis is an interesting theory that can potentially explain how an increased species richness can decrease community variability and thus increase community stability, so is the portfolio effect. Therefore, I will attempt to explain this concept as understood during our discussion. Unlike the insurance hypothesis, the portfolio effect does not assume that individual species are correlated. On the contrary, it assumes that fluctuations of individual species are not perfectly correlated. However, despite the lack of strong correlation between species that could lead to a more negative covariance, the variability of community is lowered than variability of individual species populations due to averaging of population fluctuations across species. Because this explanation, which is derived from the article discussed from this week, was somewhat confusing, we attempted to understand this concept in our own way.

From our discussion we have understood the insurance hypothesis to be associated with the effects of the covariance of individual populations of species to the variance of the community the populations compose, whereas the portfolio effect is associated with the variance of the individual species rather than the covariance. In other words, the decrease in community stability is due not to the decrease in the covariance of species as a result of increased species richness, but due to the decrease in variances of each species as a result of increased species richness. This makes sense, especially in the case of biomass being the measure of stability, considering that a community has a limited area because if the number of species increase it is inevitable that the area for each species decreases automatically lowering the species variance. However, this can only be true under the assumption that species evenness is high.

Species evenness is an important aspect of this theory because in the presence of a dominant species that will remain the dominant species even with the introduction of new species, the variance will not change for that species and because it makes up a large portion of the community, it will have different effects. In the case that of low species evenness, the stability is mainly influenced by the population fluctuations of dominant species.