I have to come up with a measure of diversification for trade (this can tie in closely to diversification as regards portfolios).
Are there any well known measures of portfolio diversification?
Answer
In 2006 Choueifaty proposed a measure of portfolio diversification, called the Diversification Ratio (DR), which he defined as the ratio of the weighted average of the volatilities of the assets in the portfolio, to the portfolios overall volatility. The DR of a long only portfolio is greater than or equal to one, and equals unity for a single asset portfolio. In essence, the DR of a portfolio measures the diversification gained from holding assets that are not perfectly correlated.
Source: Choueifaty et al. : Properties of the most diversified portfolio, 2011 link
More details in Choueifaty et al. Towards Maximum Diversification, JPM 2008 link
No comments:
Post a Comment