We consider a wireless system consisting of one source, one destination and M relays. Assuming path loss and Rayleigh fading, we use the cutset upper bound to show that no matter where the relays are located, the maximum diversity one can obtain is M + 1. However, one can achieve a higher diversity gain, namely [(M+2/2)(2)], if [M/2] of the relays are clustered with the source and [M] with the destination. This result utilizes the observation that if two wireless nodes are very close, Rayleigh assumption breaks and the proper channel model is additive white Gaussian noise (AWGN). Hence to realize a virtual multi-input multi-output (MIMO) system, clustering is essential.