Improved Risk Reporting with Factor-Based Diversification Measures

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

Appendices

Figure 17: Diversification Measures for the Equally-Weighted S&P500 at a Yearly Frequency and Using Rolling-Windows of 1 Year for the Covariance (Inverse HerfindahlMetric)

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 of 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.

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An EDHEC-Risk Institute Publication