Improved Risk Reporting with Factor-Based Diversification Measures

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

Appendices

Figure 9: Distribution of Diversification Measures of US Pension Funds Using a 5-Year Window for the Covariance in Year 2002, 2007 and 2012

These figures display the distribution of the effective number of constituents (ENC), and the effective number of bets (ENB) computed with a PCA approach, and an MLT approach for the US pension funds of the P&I database in year 2002, 2007 and 2012. The PCA and MLT methods are based on the sample covariance matrix of 11 risky benchmarks representing the fund’s asset allocation, and estimated with 5 years of historical returns.

74

An EDHEC-Risk Institute Publication