Portfolio Diversification Analyzer: Check Your Risk Concentration
What this portfolio diversification analyzer does
This calculator helps you understand whether your portfolio is well diversified or overly concentrated in a small number of holdings, asset types, or regions. You enter each holding with its value, expected return, and volatility estimate, then the tool computes portfolio-level summary metrics and a detailed table.
How the calculations work
Weights are computed from values as \( w_i = \frac{V_i}{\sum_{k=1}^{n} V_k} \). Using these weights, the tool estimates portfolio expected return and concentration.
Expected annual return is the weighted average \( E[R_p] = \sum_{i=1}^{n} w_i \cdot E[R_i] \).
Real return is approximated as \( E[R_{real}] \approx E[R_p] - \pi \), where \( \pi \) is the inflation rate you enter.
Concentration and effective diversification
The tool uses the Herfindahl–Hirschman Index (HHI) over holdings: \( \text{HHI} = \sum_{i=1}^{n} w_i^2 \). A higher HHI indicates more concentration.
An intuitive interpretation is the effective number of holdings: \( N_{eff} = \frac{1}{\sum_{i=1}^{n} w_i^2} \). For example, if one holding dominates your portfolio, \( N_{eff} \) drops even if you have many lines in the list.
Estimated volatility and risk contribution
Portfolio volatility is estimated using a simplified covariance approach: \[ \sigma_p = \sqrt{\sum_{i=1}^{n}\sum_{j=1}^{n} w_i w_j \sigma_i \sigma_j \rho_{ij}} \] where \( \sigma_i \) are volatilities and \( \rho_{ij} \) are correlations. If you do not provide correlations, the tool uses simple default correlations by asset type for educational estimation.
Risk contribution is shown as a percentage share of total estimated portfolio risk. If a single holding contributes a very large share, the table highlights that row as a possible concentration signal.
How to use the results
Use the summary cards to spot concentration quickly (largest holding weight, effective holdings, and HHI). Use the table to see which holdings drive return and risk. If you want a more diversified profile, consider spreading value across more independent assets or reducing exposure to a single dominant holding.
Important notes
This tool is educational and simplifies real-world portfolio behavior. Correlations can change over time, and volatility is only an estimate. Always validate inputs and consider professional guidance for decisions.