Limits of diversification
The point past which adding names barely reduces portfolio dispersion: issuer-specific risk has already been cancelled and what is common to all of them remains in full.
Formula
As the number of holdings grows the first term tends to zero and the second to the average covariance. That average is the risk a longer list cannot remove.
How to read the number
The value of a new holding is decided by how weakly it is related to what is already there, not by the length of the list.
When the metric lies
Also known as: diversification limit