We empirically analyze whether geographic market diversification, or product diversification, reduces firm performance fluctuations during recessions. The degree of diversification is measured by whether firms diversify geographically by entering export markets and by offering a variety of products and services. Using the financial data of externally audited firms, we examine the relationship between the degree of diversification and changes in business performance (sales growth rate, operating margin) and factors of production (labor cost and investment rate in tangible assets) during the recession. The results show that geographic diversification does not show a common portfolio effect during the recession, but exporters perform relatively better during the recession when domestic demand declines are more pronounced than abroad. Using the share of primary products as a measure of diversification, we find a portfolio effect of diversification across recessions. In manufacturing, the slowdown in labor and capital was significantly lower, and non-manufacturing firms had relatively higher sales growth during the recession. This suggests that when the decline in demand during a recession is different across industries, firms with a higher degree of diversification experience less variation in performance due to portfolio effects.