Improved Risk Reporting with Factor-Based Diversification Measures

Improved Risk Reporting with Factor-Based Diversification Measures — February 2014

Appendices

Figure 2: Diversification Measures for the Equally-Weighted S&P500 at a Yearly Frequency and Using Rolling-Windows of 1 Year for the Covariance (Entropy Metric)

These figures display the effective number of constituents (ENC) and the effective number of uncorrelated bets (ENB) computed with a PCA approach and an MLT approach for the equally-weighted scheme of the S&P500 constituents. The PCA and MLT methods are based on a robustified version of the sample covariance matrix estimated with rolling-windows of 52 weeks of constituents’ returns between January 1959 until the end of December 2012.

Figure 3: Nominal Number of Constituents in the S&P500 Index

This figure displays the nominal number of constituents in the S&P500 (white+black), together with the number of constituents available in the database CRSP that have a historical time series of one year at each point in time (white). The study covers the

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An EDHEC-Risk Institute Publication