Diversification

This handles the math behind portfolio diversification, from basic two-asset variance formulas through efficient frontier construction and risk contribution analysis. You'll reach for it when building portfolios, computing correlations, or explaining why holding 50 tech stocks isn't actually diversified. It covers minimum variance portfolios, diversification ratios, and factor-based approaches. The most useful bit is probably the risk contribution decomposition, which shows exactly which positions drive your portfolio volatility. One thing to know: it's grounded in the reality that correlations spike during crises, so the examples include stress-testing correlation matrices rather than pretending diversification always works when you need it.

skills.sh installs: 769
GitHub stars: 224
last updated: Aug 21, 2026

View on GitHub

Install

$ npx -y skills add joellewis/finance_skills --skill diversification --agent claude-code

Installs into .claude/skills of the current project.

Files

Diversification

Core Concepts

Portfolio Variance (2 Assets)

For a portfolio of two assets with weights w_1 and w_2, volatilities sigma_1 and sigma_2, and correlation rho_12:

sigma^2_p = w_1^2 * sigma_1^2 + w_2^2 * sigma_2^2 + 2 * w_1 * w_2 * sigma_1 * sigma_2 * rho_12

Diversification benefit arises whenever rho_12 < 1, because the portfolio volatility will be less than the weighted average of individual volatilities.