Calculator

Diversification Impact Illustrator

See how much a single holding's bad year actually drags down a diversified portfolio — and why diversification can't protect against a shock that hits every holding at once.

← Read the Diversification concept page

Number of holdings in the portfolio

Shock to the affected holding(s)

If just one holding is hit

-2.00%

portfolio-wide impact

If the shock hits every holding at once (market-wide)

-40.00%

How the math works

This assumes an equal-weighted portfolio of 20 holdings, with the other holdings otherwise flat. If the shock is specific to just one holding, only 5.0% of the portfolio is exposed to it, so the portfolio-wide impact is the shock divided by the number of holdings: -40.0% / 20 = -2.00%.

But if the same shock hits every holding simultaneously — a broad market decline, for instance — every holding drops together, so the portfolio-wide impact is the full -40.00%, no matter how many holdings the portfolio has. Diversification reduces the first kind of risk; it can't touch the second.