Portfolio Diversification Quant Interview Guide
Portfolio diversification quant interview guide covering variance reduction, correlation, concentration, regimes, examples, and caveats.
Candidates discussing risk reduction across assets, signals, or strategies.
Diversification depends on dependence
Adding positions reduces risk only when the positions are not perfectly dependent. Correlation, common factors, and shared liquidity matter.
More names is not always more diverse
A portfolio with many stocks can still be concentrated in one sector, factor, country, or liquidity profile. Count exposures, not just positions.
Concrete example
Twenty momentum strategies may diversify less than expected if they all lose during the same market reversal. Stress correlations can rise when needed most.
Measure and monitor
Use covariance, factor exposures, risk contribution, concentration limits, and scenario tests to understand whether diversification is real.
Common mistakes
Candidates often assume historical low correlation will persist. A better answer explains why dependencies can change in stressed markets.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.