Portfolio Diversification Score

Diversification Score (0-100) is calculated from four components:

• Diversification Ratio (40%): Weighted average volatility / portfolio volatility. Higher ratio = better diversification.
• Number of Assets (20%): More distinct asset classes improve the score.
• Concentration — HHI (20%): Herfindahl-Hirschman Index of weights. Lower concentration = better.
• Average Pairwise Correlation (20%): Lower average correlation = better diversification.

Portfolio Volatility is calculated using the full covariance matrix: σ_p = √(w' Σ w) where w is the weight vector and Σ is the annualized covariance matrix of daily returns.

Risk Reduction compares the actual portfolio volatility against the weighted average volatility (worst case: all assets perfectly correlated). Positive % means diversification is reducing your risk.

Risk Contribution shows each asset's marginal contribution to total portfolio variance: MCTR_i = w_i × Σ(w_j × Cov_ij) / σ²_p

Real Returns: All calculations use monthly real returns (nominal return minus CPI inflation). This gives a more accurate picture of purchasing power preservation.

Data: Monthly TRY-denominated prices resampled from daily data. BIST data from Borsa Istanbul, CPI (TÜFE) from TCMB EVDS, House Price Index from TCMB.