Article ID Journal Published Year Pages File Type
5085254 International Review of Financial Analysis 2009 6 Pages PDF
Abstract
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.
Keywords
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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How to quantify the influence of correlations on investment diversification
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