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Portfolio Diversification Calculator

Measure your portfolio's diversification score and identify concentration risks

Your Holdings

Diversification Analysis

Diversification Score

59.5

Out of 100

Risk Level

Moderately Diversified

Total Stocks

4

Sectors

3

Total Portfolio Value

₹5,50,000

Sector-wise Allocation

Technology54.5% (₹3,00,000)

⚠️ High concentration - consider rebalancing

Banking27.3% (₹1,50,000)
FMCG18.2% (₹1,00,000)

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Disclaimer

This calculator is for informational and educational purposes only. It does not constitute financial or investment advice. Consult with a qualified financial advisor before making investment decisions.

What is Portfolio Diversification Calculator?

A Portfolio Diversification Calculator measures how well your investments are spread across different sectors, asset classes, and individual holdings. It calculates a diversification score based on concentration risk, helping you understand if you're overexposed to any single sector or stock. Proper diversification is crucial for risk management and can help protect your portfolio from sector-specific downturns while maintaining growth potential.

How to Use This Calculator

  1. Add all your stock holdings with their current values
  2. Assign the appropriate sector to each holding
  3. View your diversification score (0-100)
  4. Check sector-wise concentration analysis
  5. Identify overweight positions that need rebalancing

Formula Used

Herfindahl-Hirschman Index (HHI) = Σ(Sector Percentage)² Diversification Score = 100 - (HHI / 100) Score Interpretation: 70-100: Well Diversified 50-69: Moderately Diversified 30-49: Poorly Diversified 0-29: High Concentration Risk

Example Calculation

Example Portfolio Analysis: Holdings (Total: ₹5,00,000): 1. Tech Stock A: ₹2,00,000 (40%) - Technology 2. Bank Stock B: ₹1,50,000 (30%) - Banking 3. Tech Stock C: ₹1,00,000 (20%) - Technology 4. FMCG Stock D: ₹50,000 (10%) - FMCG Sector Breakdown: - Technology: 60% (₹3,00,000) ⚠️ High concentration - Banking: 30% (₹1,50,000) - FMCG: 10% (₹50,000) HHI = 60² + 30² + 10² = 3600 + 900 + 100 = 4600 Diversification Score = 100 - (4600/100) = 54 Result: Moderately Diversified Recommendation: Reduce technology exposure, increase FMCG and add more sectors

Frequently Asked Questions

How many stocks do I need for good diversification?

Research suggests 15-25 stocks across 6-8 different sectors provides optimal diversification. However, quality matters more than quantity. Five well-researched stocks across different sectors can be better than 50 random stocks.

What's the ideal sector allocation?

No single sector should exceed 25-30% of your portfolio. Aim to have exposure to at least 5-6 different sectors. Popular diversified allocation: Technology (20%), Banking (20%), Healthcare (15%), FMCG (15%), Energy (15%), Others (15%).

Can I be over-diversified?

Yes! Holding too many stocks (50+) can lead to 'diworsification' where you dilute your best ideas and find it hard to track performance. It's better to own 20-25 quality stocks you understand well than 100 stocks you know little about.

Should I diversify across market caps?

Yes! Include a mix of large-cap (60-70%), mid-cap (20-25%), and small-cap (10-15%) stocks. Large caps provide stability, mid-caps offer growth, and small caps provide high returns potential. Adjust based on risk tolerance.

How does sector rotation affect diversification?

Different sectors perform well at different times. A diversified portfolio ensures you're always participating in the best-performing sectors. During bull markets, cyclicals outperform. During downturns, defensives (FMCG, Healthcare) protect capital.

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