How is the diversification score calculated?

The score combines two ideas: how evenly capital is spread across asset classes (using the Herfindahl-Hirschman concentration index) and how low the average correlation between those classes is. A perfectly even, low-correlation portfolio scores near 100; an all-in single-class portfolio scores near 0.

What is the Herfindahl index?

It is the sum of the squared allocation weights. A single 100 percent holding gives an index of 1.0 (maximum concentration); ten equal 10 percent holdings give 0.1. Lower is more diversified, and the tool converts it into an effective number of independent positions.

Why do stablecoins improve the score?

Stablecoins have near-zero correlation with volatile crypto assets, so adding them lowers the portfolio's average correlation and cushions drawdowns. The static correlation matrix treats stablecoins as roughly uncorrelated with the risk-on classes.

Are the correlations exact?

No. The tool uses a fixed, representative correlation matrix between asset classes for an estimate, not live market data. Real correlations shift, and in sharp sell-offs most crypto correlates toward 1. Treat the figure as a planning guide, not a guarantee.

Does diversification eliminate risk?

No. Diversification reduces idiosyncratic, single-asset risk, but crypto as a whole carries systemic risk that spreading across classes cannot remove. In a broad market crash, correlations spike and most positions fall together regardless of class.

Crypto Portfolio Diversification Scorer

Holding ten different tokens is not diversification if they all move together. This scorer looks at how your capital is spread across asset classes and how correlated those classes are, then condenses it into a single 0-100 diversification score with concrete concentration warnings.

How it works

Two factors drive the score. First, concentration is measured with the Herfindahl-Hirschman Index (HHI), the sum of squared allocation weights:

HHI = Σ (weightᵢ)²        (weights as fractions, e.g. 0.25)
effective positions = 1 / HHI

Second, the tool estimates the average pairwise correlation of your allocation using a fixed correlation matrix between classes, where stablecoins are treated as near-uncorrelated and the volatile risk-on classes (L1, L2, DeFi, gaming) are moderately to highly correlated. The final score rewards low HHI and low average correlation:

score = 100 × (evenness factor) × (1 − avg correlation factor)

Example and tips

A portfolio that is 80 percent in one layer-1 coin and 20 percent in another scores poorly: its HHI is high (0.68), giving roughly 1.5 effective positions, and both classes are highly correlated. Splitting that capital across L1, L2, DeFi, infrastructure, and a stablecoin allocation lowers the HHI toward 0.2 and pulls the average correlation down, lifting the score sharply. Remember the static matrix is a planning estimate — in a violent sell-off, crypto correlations converge toward 1 and diversification offers far less protection than in calm markets.