Overlapping Correlation Coefficient
ETH Risk Center – Working Paper Series ETH-RC-13-004
12 Pages Posted: 10 Jan 2014
Date Written: September 24, 2013
This paper provides a mapping from portfolio risk diversification into the pairwise correlation between portfolios. In a finite market of uncorrelated assets, portfolio risk is reduced by increasing diversification. However, higher the diversification level, the greater is the overlap between portfolios. The overlap, in turn, leads to greater correlation between portfolios.
JEL Classification: C02, G11
Suggested Citation: Suggested Citation