This paper presents findings on three elements relevant to regional economic diversification and stability using concepts from portfolio theory. First, the empirical form of a frontier of efficient portfolios of manufacturing industries is computed and shown in risk/return space. This frontier represents the upper bounds for regional diversification aimed at maximizing expected values for given levels of risk. Second, diversification measures are computed for sample regions and are shown relative to the efficient frontier. Discussion reveals the portfolio approach prescribes superior normative guides relative to other approaches to diversification. Third, statistical tests are undertaken to determine if a portfolio diversification measure can explain cross-sectional differences in subsequently realized instability.