Track 04 · Risk & Portfolio Building
Diversification and asset allocation
Why owning ten tickers can still be one bet, and how to set a mix you can hold through a drawdown.
Diversification is measured by what drives your returns, never by the count of tickers: ten names in one sector share one drawdown.
Illustrative. Correlations converge in a selloff, which is why broad asset classes are the practical defence.
Don’t concentrate by accident
Ten technology stocks are one bet on technology. Diversification is measured by what drives your returns: sector, geography, factor and asset class, never by the count of tickers.
The goal is that no single ordinary setback can permanently impair the portfolio: several holdings should be able to fail without changing your plan.
Correlation over ticker count
Correlation measures how holdings move together. In a calm market, diversification looks pointless because everything rises; its value appears precisely when correlations converge in a selloff, which is why broad allocations (different sectors, regions, and stocks alongside bonds) are the practical defence.
Check what your holdings share: the same customers, the same commodity, the same interest-rate sensitivity. Hidden common factors are where portfolios actually break.
Set the mix you can hold
Asset allocation is the split between growth and defensive assets, decided from your time horizon and your honest tolerance for drawdown, never from what last year returned.
Write it down, rebalance on a schedule (annually or when a band is breached), and let the rules make the decisions that emotion would get wrong in a crash.
Three things to remember
- 01Count exposure to what drives returns, never to the ticker count.
- 02Correlations converge in crashes; broad asset classes are the defence.
- 03Choose an allocation you would keep through a 30% drawdown, then rebalance on a schedule.
Try it on live data
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