Finance category
Mortgage, loan, investing, tax, and money calculators.
Geographic Diversification Calculator
Geographic spread reduces single-market risk.
Geographic risk score
3.9
Effective metros
1.6
Top metro exposure
$105,000,000
How the math works
Effective metros = metros / (1 + (metros-1) × correlation). Lower correlation = more effective diversification.
6 metros × 55% correlation: effective = 6 / (1 + 5 × 0.55) = 1.6 effective diversifier metros.
How to Use
- Enter portfolio value.
- Enter top metro concentration %.
- Enter # metros.
- Enter correlation coefficient.
- Read geographic risk score.
Frequently Asked Questions
Correlation matters?
Miami + Fort Lauderdale = high correlation (~0.85). Miami + Chicago = moderate (~0.55). Miami + Berlin = low (~0.30). Low correlation provides genuine diversification; high correlation just multiplies exposure.
Practical limits?
5-8 top 20 metros typical for institutional portfolio. 10+ often impractical (reduces operational expertise). Balance diversification against operational capability. Top 10 metros capture 60% of US institutional RE capital.
Secondary markets?
Higher cap rates (more risk premium). Less correlation with primary markets. Smaller transaction volume. Limited capital sources. Secondary markets improve diversification and yield but increase operational complexity.
How often should I rerun this?
Rerun this calculator whenever inputs change materially — new rent roll data, rate moves, loan balance updates, or quarterly operating data. For active deals, monthly refresh is typical. For stabilized assets under monitoring, quarterly is fine. Treat the output as a decision tool, not a one-time answer — market conditions evolve and so should your analysis.
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