How to quantify the influence of correlations on investment diversification
- Medo, Matúš Department of Physics, The Hong Kong University of Science and Technology, Hong Kong, China
- Yeung, Chi Ho Department of Physics, The Hong Kong University of Science and Technology, Hong Kong, China - Lab of Information Economy and Internet Research, University of Electronic Science and Technology of China, Chengdu, China
- Zhang, Yi-Cheng Physics Department, University of Fribourg, Switzerland - Lab of Information Economy and Internet Research, University of Electronic Science and Technology of China, Chengdu, China
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04.02.2009
Published in:
- International Review of Financial Analysis. - 2009, vol. 18, no. 1-2, p. 34-39
English
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.
- Faculty
- Faculté des sciences et de médecine
- Department
- Département de Physique
- Language
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- English
- Classification
- Economics
- License
- License undefined
- Identifiers
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- RERO DOC 12562
- DOI 10.1016/j.irfa.2009.01.001
- Persistent URL
- https://folia.unifr.ch/unifr/documents/301291
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