How to quantify the influence of correlations on investment diversification

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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.
14 pages, 4 figures

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Portfolio Management, Physics and Society

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http://salesiana.dossiersoluciones.com/handle/123456789/227024

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/0805.3397
 http://arxiv.org/abs/0805.3397
 International Review of Financial Analysis 18, 34-39 (2009)
 doi:10.1016/j.irfa.2009.01.001

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arXiv