Managing Diversification

New York: Tuesday 10/13/09, 4:30pm - 6:00pm, Bloomberg, 731 Lexington Avenue, NY 10022
http://www.bloomberg.com/promo/Oct/35738279NY/alpha2.html

London: Wednesday 11/4/09, 4:30pm - 6:00pm, City Gate House, 39-45 Finsbury Square, London EC2A 1PQ
http://www.bloomberg.com/promo/Nov/35896880/alpha2.html

To sign up for this free event, contact alphaevents@bloomberg.net

We propose a unified, fully general methodology to analyze and act on diversification in any environment, including long-short trades in highly correlated markets. First, we build the diversification distribution, i.e. the distribution of the uncorrelated bets in the portfolio that are consistent with the portfolio constraints. Next, we summarize the wealth of information provided by the diversification distribution into one single diversification index, the effective number of bets, based on the entropy of the diversification distribution. Then, we introduce the mean-diversification efficient frontier, a diversification approach to portfolio optimization. Finally, we describe how to perform mean-diversification optimization in practice in the presence of transaction and market impact costs, by only trading a few optimally chosen securities.

This program is eligible for 1.5 CE credit hours, as granted by CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.