Calculator Panel
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Enter your values above and click Calculate.
What This Calculator Does
This calculator measures portfolio concentration using the HHI index, providing a diversification grade to help you manage risk.
How to Use This Calculator
Input weight percentages for up to five assets (which must sum to 100%). Click Calculate to view your HHI score and diversification rating.
How the Calculation Works
The underlying math engine processes your inputs using exact formulas. This systematic approach ensures professional, institutional-grade calculation precision:
Mathematical Formula
Formula Legend:
- · HHI Score = Measures portfolio concentration (below 1500 is diversified, above 2500 is highly concentrated).
- · W1, W2, etc. = Percentage weights of each holding in your portfolio.
Practical Example
Suppose you hold five assets with weights of 40%, 20%, 20%, 10%, and 10%:
Step-by-Step Mathematical Walkthrough:
- 1 Square each weight percentage: 40^2 = 1600; 20^2 = 400; 20^2 = 400; 10^2 = 100; 10^2 = 100.
- 2 Sum the squared weights: 1600 + 400 + 400 + 100 + 100 = 2600.
- 3 An HHI score of 2600 indicates a Highly Concentrated portfolio (above 2500 limit).
- 4 Diversifying weights more evenly (e.g. 20% each) yields an HHI of 1000 (Highly Diversified).
Important Assumptions & Notes
- Total asset weight inputs should sum to 100%.
Common Mistakes or Considerations
- Over-concentrating in a single stock or sector, exposing your portfolio to high unsystematic risk.
Frequently Asked Questions
What is a good diversification HHI score?
An HHI score under 1500 is considered highly diversified, 1500 to 2500 is moderately diversified, and above 2500 is highly concentrated.
What is the Herfindahl-Hirschman Index (HHI) for portfolios?
A mathematical measure of concentration calculated by squaring the weight percentage of each asset in the portfolio and summing them together.
How does the HHI score scale with number of stock positions?
An equally weighted portfolio of 10 stocks has an HHI of 1000. An equally weighted portfolio of 4 stocks has an HHI of 2500. More positions lower your score and indicate higher diversification.
What are the risks of holding a highly concentrated stock portfolio?
A concentrated portfolio is highly vulnerable to 'unsystematic risk' (single stock failures). Diversification spreads risk so that one bad company doesn't destroy your wealth.
How can I improve my portfolio's diversification score?
By adding non-correlated assets, increasing the number of holdings, or spreading your capital more evenly across your existing positions.