What is a good diversification ratio?

A ratio above 1.3 indicates meaningful diversification. A ratio near 1.0 means assets are highly correlated and diversification provides minimal risk reduction.

How many stocks are needed to be diversified?

Research shows 90% of diversifiable risk is eliminated with 12-18 stocks across different sectors. 30+ stocks achieve near-maximum diversification.

What about international diversification?

Adding international stocks historically reduces portfolio volatility due to lower correlation with US markets, though correlations have increased post-2008.

Portfolio Diversification Ratio

Calculate the diversification ratio of a portfolio: weighted average volatility divided by portfolio volatility. Higher ratios indicate better risk reduction through diversification.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate the diversification ratio of a portfolio: weighted average volatility divided by portfolio volatility. Higher ratios indicate better risk reduction through diversification. Use the diversification ratio result to inform your calculation.

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Frequently Asked Questions

What is a good diversification ratio?

How many stocks are needed to be diversified?

What about international diversification?