A Portfolio Diversification Index

jonathan S. Morgan

69 citations0/0 files storedThe Journal of Portfolio Management

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Risk and Portfolio Optimization Financial Markets and Investment Strategies Financial Risk and Volatility Modeling

Abstract

Despite the importance of diversification in portfolio construction, our current methods of measuring it are inefficient. Construction of a Portfolio Diversification Index (PDI) presents a new way to understand the concept. PDI, which measures the number of unique investments in a portfolio, is useful to assess marginal and cumulative diversification benefits across asset classes and across time. Implementation in hedge fund strategies reveals that various hedge funds offer less diversification than may have been thought, and that there has been reduced diversification in the past several years TOPICS:Portfolio construction, real assets/alternative investments/private equity, performance measurement

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References

2004Hedge Fund Benchmarks: A Risk-Based Approach 2002Asset-Based Style Factors for Hedge Funds 2003Hedge Funds with Style 1997Survivorship Bias and Investment Style in the Returns of CTAs 2004Hedge Funds: Quantitative Insights 2002Hedge Fund Diversification

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