How to quantify the influence of correlations on investment diversification
Portfolio Management
2009-04-16 v2 Physics and Society
Abstract
When assets are correlated, benefits of investment diversification are reduced. To measure the influence of correlations on investment performance, a new quantity - the effective portfolio size - is proposed and investigated in both artificial and real situations. We show that in most cases, the effective portfolio size is much smaller than the actual number of assets in the portfolio and that it lowers even further during financial crises.
Cite
@article{arxiv.0805.3397,
title = {How to quantify the influence of correlations on investment diversification},
author = {Matus Medo and Chi Ho Yeung and Yi-Cheng Zhang},
journal= {arXiv preprint arXiv:0805.3397},
year = {2009}
}
Comments
14 pages, 4 figures