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Diversification Score®
Diversification Score® is a number from 400 to 850 that shows how well your portfolio is invested in Stocks, ETFs, Cryptocurrencies, etc. If you have a score anywhere from 400 to 500, that is bad and could mean, for example, that you invested everything only in stocks and assumed a lot of risks. If your score is anywhere from 750 to 850, that is good and means that you invested in many assets like Cryptocurrencies, Stocks, ETFs, etc. making your risk lower.
Investors may consider using a Diversification Score® to understand if their chosen asset allocation accurately reflects their stated financial situation and investment objectives. Investors with low Diversification Scores should consider seeking advice for improving their portfolio’s allocation. Tickeron’s Artificial Intelligence tool can provide allocation and/or investment advice and can generate investment ideas with a subscription. On the other hand, high Diversification Scores may indicate that the investor has made sound investment decisions relative to their goals and the investment choices available to them.
The technology behind Diversification Score® involves a sophisticated algorithm that measures factors like asset class, Sharpe ratio, correlations, and more. Tickeron created the algorithms and owns the technology used to generate Diversification Scores. It is calculated in 3 Steps:
- Step 1: Determine Selection Quality
- Selection Quality is calculated on a scale of 0 - 100%. An optimal Selection Quality would be rated 100%.
- Tickeron’s Selection Quality algorithm is designed to analyze an investment portfolio, to determine if the investor has selected an optimal mix of investments relative to his/her investment objectives, risk tolerance, portfolio value, and other factors. The algorithm will also determine if the investor selected an adequate mix of non-correlated assets.
- Step 2: Determine Allocation Quality
- Allocation Quality on a scale of 0-100%. An optimal Allocation Quality would be rated 100%.
- The Allocation Quality algorithm analyzes what percentage an investor has allocated to each position in his/her portfolio. An investor, for example, can have 100% Selection Quality if he has made good investment choices but can have a poor Allocation Quality score if he has allocated the wrong amounts to each position.
- Step 3: Once the Selection Quality and Allocation Quality scores have been calculated, the algorithm will merge the data to calculate the DivScore® on a scale of 400 to 850. This range is very similar to a credit score - for example, a Divscore® of 750 would indicate that the portfolio is well diversified, just as a credit score of 750 indicates excellent creditworthiness and low risk of default.
Limitations
The Diversification Score® is not meant to be a definitive measure of how well a portfolio is diversified. It should more be viewed as a measurement tool for investors to get a better understanding of how effectively they have assembled a portfolio based on certain parameters. The parameters used to determine a Diversification Score® are as follows:
- Frequency of trading
- Risk Level (Aggressive / Moderate / Conservative)
- Years until Withdrawal (0-5 years / 5-15 years / 15+ years)
- Type of Account (Non-Retirement / Retirement (tax-deferred)
- Cash Reserves needed (Less than 12 months / More than 12 months)
- Plans to add money
- Volatility Level (0-10)
The generated DivScore® may vary depending on how much of the above information the user provides.
The Diversification Score® on its own should not be constituted as investment advice or a definitive measure of an investor’s probability of meeting his/her long-term goals. Investing involves the risk of loss and investors should seek professional advice when building an investment portfolio or making changes to asset allocation.
Investment Ideas
For investors who have cash and are looking for investment ideas, there are several considerations to bear in mind, such as: what type of growth do you want? How long do you plan to invest for? What is your risk tolerance? And so on. If an investor’s goal is simply to build a diversified portfolio, then using Tickeron’s Diversification Score® tool could be a good starting point.
Please read about the methodology of calculation of DivScore® here.
Limitations
This algorithm of generation of Investment ideas is based Diversification Score® concept. The Diversification Score® is not meant to be a definitive measure of how well a portfolio is diversified. It should more be viewed as a measurement tool for investors to get a better understanding of how effectively they have assembled a portfolio based on certain parameters.
The parameters used to determine a Diversification Score® are as follows:
- Frequency of trading
- Risk Level (Aggressive / Moderate / Conservative)
- Years until Withdrawal (0-5 years / 5-15 years / 15+ years)
- Type of Account (Non-Retirement / Retirement (tax-deferred)
- Cash Reserves needed (Less than 12 months / More than 12 months)
- Plans to add money
- Volatility Level (0-10)
The generated DivScore® may vary depending on how much of the above information the user provides.
The Diversification Score® on its own should not be constituted as investment advice or a definitive measure of an investor’s probability of meeting his/her long-term goals. Investing involves the risk of loss and investors should seek professional advice when building an investment portfolio or making changes to asset allocation.
Allocation Ideas
“Allocation Ideas” refers to ideas for your portfolio’s asset allocation. For investors, the ‘asset allocation decision’ is an important one. It means establishing risk/reward trade-offs in your investment portfolio. How much do you allocate to bonds versus stocks versus cash? What types of equities, bonds, funds, and/or ETFs do you choose? What is your investment portfolio’s risk profile? These are all asset allocation decisions an investor makes based on their risk tolerance, investment objectives, time horizon, and other personal financial factors.
If you currently have a 401(k), a retirement plan, or an investment brokerage account, it probably means you’ve already made an asset allocation decision (unless you are 100% in cash). If you would like to see how Tickeron’s Artificial Intelligence (A.I.) would diversify your portfolio based on information you provide about your financial situation, then start with our Diversification Score® tool. The DivScore® A.I. tool can provide you with a ‘draft’ of a diversified portfolio that is tailored to your needs.
Diversification Score® is a metric used to measure an investment portfolio’s diversification on a scale of 400 (poorly diversified) to 850 (well diversified). Much like a Credit Score measures a person's creditworthiness based on financial history, a Diversification Score® measures how effectively a portfolio is diversified based on a person's investment objectives, risk tolerance, portfolio value, years until withdrawal, and available investment options (amongst other factors).
Limitations
The algorithm that determines ‘Allocation Ideas’ for assets and positions in a portfolio is based on the Diversification Score® (DivScore®) concept. To note, DivScore® is not meant to provide a definitive measure of how well a portfolio is diversified. It should be viewed as a measurement tool that helps investors get a better understanding of how effectively they have assembled a portfolio based on certain parameters.
The parameters used to determine a Diversification Score® are as follows:
- Frequency of trading
- Risk Level (Aggressive / Moderate / Conservative)
- Years until Withdrawal (0-5 years / 5-15 years / 15+ years)
- Type of Account (Non-Retirement / Retirement (tax-deferred)
- Cash Reserves needed (Less than 12 months / More than 12 months)
- Plans to add money
- Volatility Level (0-10)
The DivScore® generated may vary depending on how much of the above information the user provides.