What is a good portfolio risk score?

An HHI below 1,500 indicates a well-diversified portfolio. Between 1,500-2,500 is moderately concentrated. Above 2,500 suggests high concentration risk where a single stock's decline could significantly impact your portfolio value.

How many stocks should I own for diversification?

Research suggests 15-30 stocks across different sectors provides adequate diversification. However, allocation matters more than count—owning 20 stocks with 50% in one is still concentrated. Aim for no single position above 10% of your portfolio.

Does concentration risk matter for long-term investors?

Yes, concentration risk matters at any time horizon. While concentrated portfolios can outperform during bull runs, they also face larger drawdowns. Diversification reduces volatility and protects against company-specific risks like fraud, management failures, or industry disruption.

How do I reduce portfolio concentration?

To reduce concentration: 1) Set maximum position sizes (e.g., no stock over 10%), 2) Diversify across sectors and geographies, 3) Rebalance periodically when winners grow too large, 4) Consider index funds or ETFs for instant diversification.

Should I sell my winners to reduce concentration?

Not necessarily. Consider tax implications of selling. Instead, you can: 1) Stop adding to overweight positions, 2) Direct new investments to underweight areas, 3) Use dividends from concentrated positions to buy other stocks. Gradual rebalancing is often more tax-efficient.

Portfolio Risk Score Calculator

Measure your portfolio's concentration risk using the Herfindahl-Hirschman Index (HHI). Find out if you're too exposed to a single stock or sector.

What this calculator does

Calculates your portfolio's concentration score (HHI)
Identifies which stocks contribute most to risk
Shows if your portfolio is diversified, moderate, or concentrated
Provides actionable suggestions to reduce risk

How to Use

Add your holdings

Enter each stock with its value or allocation %

Enter amounts

Input current market value for each position

Review breakdown

See each position as % of total portfolio

Check risk score

View your HHI concentration score

Spot problem areas

Identify overweight positions

Take action

Follow suggestions to diversify

Example

Concentrated Portfolio (High Risk)

An investor has ₹10,00,000 spread across 5 stocks, but heavily weighted in one:

Reliance Industries₹5,00,000 (50%)

TCS₹2,00,000 (20%)

HDFC Bank₹1,50,000 (15%)

Infosys₹1,00,000 (10%)

ITC₹50,000 (5%)

HHI Calculation50² + 20² + 15² + 10² + 5²

= 2500 + 400 + 225 + 100 + 25

Risk Score (HHI)3,250 (High Concentration)

Diversified Portfolio (Low Risk)

Same ₹10,00,000 spread more evenly across 5 stocks:

Reliance Industries₹2,50,000 (25%)

TCS₹2,00,000 (20%)

HDFC Bank₹2,00,000 (20%)

Infosys₹2,00,000 (20%)

ITC₹1,50,000 (15%)

HHI Calculation25² + 20² + 20² + 20² + 15²

= 625 + 400 + 400 + 400 + 225

Risk Score (HHI)2,050 (Moderate Concentration)

Understanding Your Risk Score

HHI Score	Concentration Level	What It Means
Below 1,500	Low Concentration	Well-diversified portfolio with balanced risk
1,500 - 2,500	Moderate Concentration	Some concentration exists; consider rebalancing
Above 2,500	High Concentration	Significant risk from few positions; diversify

The Math Behind HHI

The Herfindahl-Hirschman Index is calculated by:

HHI = Σ (weight%)²

Square each position's percentage weight and sum them. A portfolio with 100% in one stock has HHI = 10,000. A portfolio equally split among 10 stocks has HHI = 1,000.

Frequently Asked Questions

The Herfindahl-Hirschman Index (HHI) measures concentration by summing the squares of each component's percentage share. For portfolios, it ranges from near 0 (highly diversified) to 10,000 (100% in one stock). Lower scores indicate better diversification.

Key Terms

Concentration Risk

The risk of loss from having too much invested in a single stock, sector, or asset class.

HHI

Herfindahl-Hirschman Index. A measure of concentration calculated by summing squared percentage weights.

Diversification

Spreading investments across different assets to reduce the impact of any single investment's poor performance.

Position Size

The percentage of your portfolio allocated to a single investment.

Rebalancing

Periodically adjusting your portfolio back to target allocations as prices change.

Drawdown

The peak-to-trough decline in portfolio value. Concentrated portfolios typically have larger drawdowns.

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Disclaimer: This calculator provides a concentration risk assessment for educational purposes. It does not account for sector diversification, correlation between holdings, or other risk factors. Consult a financial advisor for personalized portfolio advice.