Does diversification promote systemic risk?

•Contagion risks formed by the over similarity of investment assets are the main cause of systemic risk.•The similarity is determined by diversification, which initially promotes similarity and disperses it after a threshold.•The diversification acts on the contagion process of systemic risk by the mediation of the similarity.•The similarity generally promotes contagion risks, while it shows a double-faced effect for state-owned commercial banks.