Diversity Score


DEFINITION of 'Diversity Score'

A measure, created by Moody's Investors Service, to estimate the diversification in a portfolio, specifically in the context of a collateralized debt obligation (CDO). The calculation methodology for a diversification score takes into account the extent to which a portfolio is diversified by industry.

BREAKING DOWN 'Diversity Score'

Technically speaking, the diversification score measures the number of uncorrelated assets that would have the same loss distribution as the actual portfolio of correlated assets. For example, if a portfolio of 100 assets had a diversification score of 50, this means that the 100 correlated assets have the same loss distribution as 50 uncorrelated assets.

  1. Collateralized Debt Obligation ...

    An investment-grade security backed by a pool of bonds, loans ...
  2. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Collateralized Bond Obligation ...

    An investment-grade bond backed by a pool of junk bonds. Junk ...
  6. Industry

    A classification that refers to a group of companies that are ...
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