Managing diversification

The qualitative definition of diversification is very clear to portfolio managers: a portfolio is well diversified if it is not heavily exposed to individual shocks. However, oddly enough, there exists no broadly accepted, unique, satisfactory methodology to precisely quantify and manage diversification.

In the special case of systematic-plus-idiosyncratic factor models, diversification is measured as the percentage of risk explained by the systematic factors. However, 'idiosyncratic' shocks are

To continue reading...

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: