DIVERSIFICATION MEASUREMENT AND ANALYSIS SYSTEM

• US 20090292648A1
• Filed: 04/03/2009
• Published: 11/26/2009
• Est. Priority Date: 04/03/2008
• Status: Active Grant

• Current Assignee: Gravity Investments LLC
• Original Assignee: Gravity Investments LLC
• Inventors: Ladd, Josh Samuel, Damschroder, James Eric
• Granted Patent: US 8,156,030 B2
• Time in Patent Office: Days
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

This disclosure details methods for measuring and analyzing diversification of portfolio of assets. A dimension is a logical and quantitative means to measure diversification. As the number of dimensions increases so does diversification. Strong asset correlations among each other detract from the notion of independence. A positive correlation increases risks and is therefore undesirable. Assets are embedded into a high dimensional Euclidean vector space. The entire portfolio is interpreted as a set of points whose ambient dimension is the number of assets in the portfolio. The Karhunen-Loève expansion is used to quantify the KL dimension of the geometric object induced by a portfolio. The associated dimension is taken as the measure of diversification accounts for both the number of assets and the commonality within them. This ensures that measuring diversification as a dimension accounts for the complete diversification affect of the portfolio and is thus a valuable portfolio management tool.

Claims

1. A system for measuring the diversification of a portfolio comprising a computer processor encoded with computer-executable instructions configured to measure the diversification of said portfolio based on a number of dimensions said portfolio resides in wherein said processor

(i) receives, as input, a portfolio comprising a plurality of assets;

(ii) weights each of the plurality of assets within the portfolio according to an investment value allocated to each of said assets;

(iii) defines a relationship between each of the plurality of assets by correlating each of the plurality of assets within the portfolio;

(iv) models the portfolio in a geometric space by stretching a vector length associated with each of said plurality of assets in the portfolio in proportion to its concentration and contribution to the portfolio while retaining a set of orientations associated with said correlating step;

(v) determines a polytope based on the modeling step associated with the portfolio; and

(vi) compares said polytope to a symmetrical model to determine a diversification value.