Scientific Beta

This paper introduces the methodology and conceptual groundings of the Scientific Beta Maximum Deconcentration indices. Originating from the equally-weighted portfolio, Maximum Deconcentration is a naive diversification strategy that aims at maximising the effective number of stocks – which is equivalent to minimising the concentration as measured by the Herfindahl index – of an equity portfolio. Highlighting the specific risks of the Maximum Deconcentration approach, we explain how this strategy eliminates parameter estimation risk by avoiding the estimation of expected excess returns, individual volatilities and pair-wise correlations. We then describe how Scientific Beta implements the Maximum Deconcentration approach, in order to obtain easily implementable and tradable indices for investors.

This paper introduces the methodology and conceptual groundings of the Scientific Beta Maximum Deconcentration indices.

Originating from the equally-weighted portfolio, Maximum Deconcentration is a naive diversification strategy that aims at maximising the effective number of stocks – which is equivalent to minimising the concentration as measured by the Herfindahl index – of an equity portfolio.

Highlighting the specific risks of the Maximum Deconcentration approach, we explain how this strategy eliminates parameter estimation risk by avoiding the estimation of expected excess returns, individual volatilities and pair-wise correlations. We then describe how Scientific Beta implements the Maximum Deconcentration approach, in order to obtain easily implementable and tradable indices for investors.