Calculator Inputs
Example Data Table
Use these sample values to test the calculator quickly.
| Asset | Category | Amount | Expected Return (%) | Volatility (%) |
|---|---|---|---|---|
| US Equity | Equity | 25000 | 10.00 | 18.00 |
| International Equity | Equity | 15000 | 8.00 | 20.00 |
| Bonds | Fixed Income | 20000 | 4.00 | 6.00 |
| REITs | Alternatives | 10000 | 7.00 | 15.00 |
| Gold | Commodity | 8000 | 5.00 | 12.00 |
Formula Used
Asset Weight: wi = Ai / ΣA
Portfolio Expected Return: Rp = Σ(wi × ri)
Covariance: Cov(i,j) = σi × σj × ρij
Portfolio Variance: σp2 = ΣΣ(wi × wj × Cov(i,j))
Portfolio Volatility: σp = √σp2
Herfindahl-Hirschman Index: HHI = Σ(wi2)
Effective Holdings: 1 / HHI
Diversification Ratio: (Σ(wi × σi)) / σp
Sharpe Ratio: (Rp - Rf) / σp
How to Use This Calculator
- Enter names, categories, and amounts for up to five assets.
- Provide annual expected return and annual volatility for each asset.
- Enter pairwise correlations between every asset pair.
- Add the risk-free rate if you want a Sharpe ratio.
- Click Calculate Diversification.
- Review expected return, portfolio volatility, HHI, effective holdings, and risk share.
- Use the CSV and PDF buttons to save the output.
- Adjust allocations and correlations to compare diversification scenarios.
FAQs
1. What does the diversification ratio show?
It compares weighted standalone asset volatility to total portfolio volatility. A higher value usually means correlations are helping reduce combined risk more effectively.
2. Why are correlations important here?
Correlation shows how assets move together. Lower or negative correlations can reduce portfolio volatility even when individual assets are volatile on their own.
3. What does HHI mean in a portfolio?
HHI measures concentration by summing squared weights. Lower values usually indicate a more balanced portfolio, while higher values suggest heavier dependence on fewer positions.
4. What are effective holdings?
Effective holdings estimate how many equally weighted assets your portfolio resembles. It adjusts for concentration, so a five-asset portfolio may behave like only two or three balanced holdings.
5. Why can risk share differ from weight?
An asset may have a modest allocation but still contribute substantial portfolio risk if its volatility is high or if correlations amplify combined movement.
6. Is a higher expected return always better?
No. A higher return may come with much higher volatility or concentration. Good diversification aims to improve risk-adjusted performance, not just maximize return alone.
7. Can I use this for sector or fund allocation?
Yes. You can enter sectors, funds, ETFs, or any investable sleeves as separate assets, provided you have reasonable estimates for return, volatility, and correlations.
8. How often should I review diversification?
Review whenever weights drift materially, correlations change, or your goals shift. Many investors check quarterly, after major market moves, or during rebalancing.