How do I calculate concentration with HHI?

Sum the squares of each holding's portfolio weight (expressed as a decimal). HHI ranges from 1/N (perfectly diversified across N positions) to 1.0 (one position only). Multiply by 10,000 if you prefer the regulatory scale.

What is effective number of holdings?

Effective number of holdings is 1 divided by HHI. A portfolio of 50 positions with one 40% and forty-nine 1.2% positions has an effective N of about 5 — far less diversified than the raw count of 50 suggests.

Articles·Concept canon

What Is Portfolio Concentration Risk? (HHI, Effective-N, and a Free Calculator)

A retail investor's guide to portfolio concentration risk — how to measure it with HHI and effective number of holdings, plus thresholds that actually matter.

David Cooper·May 4, 2026

What Is Portfolio Concentration Risk?

Portfolio concentration risk is the risk that a handful of positions, sectors, or factor exposures dominate your portfolio's returns and volatility — even when the position count looks diversified on the surface.

This is a placeholder article used to validate the blog infrastructure. The full version will cover the HHI formula, worked examples, retail-investor thresholds, and the difference between position-level, sector-level, and factor-level concentration.

How concentration is actually measured

The three measures retail investors should know:

Top-N weight — the share of portfolio value in the top 1, 5, or 10 holdings.
Herfindahl–Hirschman Index (HHI) — the sum of squared portfolio weights.
Effective number of holdings — 1 / HHI. The intuitive "how many bets do I really have."

A portfolio of 50 positions where one position is 40% and the other 49 are about 1.2% each has an effective N of roughly 5. The raw count is misleading.

Why it matters

Concentration drives idiosyncratic risk. A 40% position in a single name means you are not really diversified — you are running a concentrated bet with a 60% hedge.

Prometra's /analysis answers this for your actual holdings — connect read-only via Fidelity, Schwab, Robinhood, or any major US/Canadian broker.

Thresholds that actually matter

This section will cover what RIAs, CFAs, and institutional risk frameworks consider acceptable concentration limits — and why most retail portfolios exceed them.

Frequently asked

What is portfolio concentration risk?: Portfolio concentration risk is the risk that a small number of positions, sectors, or factor exposures dominate your portfolio's returns and volatility. It is most commonly measured using the Herfindahl–Hirschman Index (HHI), the top-N weight, or the effective number of holdings.
How do I calculate concentration with HHI?: Sum the squares of each holding's portfolio weight (expressed as a decimal). HHI ranges from 1/N (perfectly diversified across N positions) to 1.0 (one position only). Multiply by 10,000 if you prefer the regulatory scale.
What is effective number of holdings?: Effective number of holdings is 1 divided by HHI. A portfolio of 50 positions with one 40% and forty-nine 1.2% positions has an effective N of about 5 — far less diversified than the raw count of 50 suggests.