Diversification ratio
How much the correlations are actually saving you.
In the demo portfolio
1.14
How it is computed here
The weighted average of the individual volatilities divided by the portfolio's own volatility.
Worked example
- The weighted average of each holding's own volatility ÷ the volatility of the portfolio as a whole.
- 1.14 means diversification removes only a little of the risk; unrelated holdings would push it well above 1.5.
Demo portfolio: four invented companies, generated prices, measured by the real engine. Past returns do not predict future ones.
Where it misleads
1.00 means diversification is doing nothing at all — everything moves as one. It rises with genuinely uncorrelated holdings and not with the number of them.