Portfolio Diversification: How to Analyze Your Allocation by Sector, Region and Asset Class

You hold 12 lines in your portfolio and assume that counts as diversified. But if 8 of those lines are US tech stocks, you're really carrying one geographic and sectoral bet spread across 8 different tickers. Diversification isn't measured by the number of lines you hold, it's measured by your actual exposures: by sector, by geography, by asset class. Here's how to read it correctly, and why most individual investors overestimate it.

Why "I own several stocks" doesn't mean "I'm diversified"

Two holdings can have completely different tickers, names and prices while reacting to the exact same market shock: a rate hike, a slowdown in China, a tech correction. What matters for diversification isn't the number of lines, it's the correlation between their underlying risk factors.

Three dimensions to look at, not one.

• Sector: energy, technology, healthcare, financials, consumer... A sector overweight leaves you exposed to that sector's specific cycle, regardless of how many individual names make it up in your portfolio.
• Geography: US, Europe, emerging markets... A portfolio that's 90% US is riding one country's monetary policy, tax regime and economic cycle, even if it holds 20 different companies.
• Asset class: equities, bonds, cash, listed real estate... These classes don't react the same way to the same macro shocks; mixing them is what actually dampens portfolio volatility, not the number of equity lines you hold.

The trap of calculating at cost basis

Many investors look at their allocation based on what they paid, not what their positions are worth today. The problem: if a tech position doubled over two years while the rest of the portfolio stagnated, your real tech allocation has mechanically ballooned, even without buying a single new share. Your allocation "at cost basis" keeps showing a balanced split that no longer exists.

Worked example. You invest €5,000 split evenly across 5 lines (€1,000 each) in 5 different sectors. Two years later, your tech line is worth €2,200, the other 4 are still around €1,000. Your portfolio is now worth €6,200, with 35% concentrated in that single tech line, well above the original 20%. If you only look at what you paid (your cost basis), you're still seeing an even 20%-per-sector split that no longer reflects reality.

That's why a useful allocation view has to be calculated at current position value, not at purchase cost.

How to read an allocation view correctly

A good allocation view answers three questions, in this order:

1. What's my single largest exposure? (one position, one sector, one country): this is the most visible concentration risk.
2. Is that exposure intentional or accidental? A deliberate, informed conviction on a sector isn't a problem. A concentration that built up on its own through gains, without an explicit decision, is.
3. What's hiding below the radar? The "Other" bucket lumped into a pie chart sometimes hides a non-trivial total spread across several small positions in the same sector.

Anelior calculates your allocation at current value, across all four dimensions

On Anelior's Allocation tab, your portfolio's breakdown by security, sector, asset class and geography is recalculated at each position's current market value, not its purchase cost, so the view moves with your positions, not just with your trades. Unlike a simple "top 4 + Other" pie chart, the by-security view shows every single one of your holdings, including the smallest, so nothing hides inside an aggregated "Other" slice.

If you already track your portfolio in Portfolio Performance, or have a Trade Republic CSV export, Anelior imports your history and recalculates this allocation in minutes, with no manual re-entry.