Learn · Track 8: Track, practise and review · lesson 3 of 5 · Intermediate
Portfolio diversification Pakistan: how to measure it
How many PSX stocks is enough? No number answers it. Measure the largest position, top-3 share, sector share and a Herfindahl index instead.
There is no correct number of PSX stocks to own (portfolio mein kitne stocks hon). What can be measured is how concentrated a portfolio is: the weight of the largest position, the combined weight of the top three, the weight of the largest sector, and the Herfindahl index, which is the sum of each weight squared. A portfolio of six equal positions scores 1,667 on that index, which behaves like six equal stocks. For reference, the KSE-100 scored about 339 on 9 October 2026, which behaves like roughly 30 equal stocks. This post shows the arithmetic on an illustrative portfolio and lists what SuperX’s Coach will check.
What is portfolio concentration?
Concentration is how much of your money sits in a few places. It is measured on weights, not on the number of tickers. A portfolio with 20 stocks where one stock is 60% of the value is more concentrated than one with five stocks of 20% each. Counting names is the first thing people do, and the least informative.
Two kinds of concentration matter for PSX investors:
- Position concentration: one company is a large share of the portfolio.
- Sector concentration: several companies share one driver. Two banks are two stocks but one exposure to interest rates and the banking sector. The sector pages show how PSX classifies each company.
How do you measure it? Four numbers
Take each position’s market value, divide by the portfolio total, and you have the weights. Four numbers come out of them.
| Measure | How to compute it | What it tells you |
|---|---|---|
| Largest position % | The biggest weight | How exposed you are to one company |
| Top-3 % | The three biggest weights, added | How much rides on three names |
| Largest sector % | Add weights within each sector, take the biggest | How exposed you are to one business cycle |
| Herfindahl index (HHI) | Square each weight in percent, add them | One score for the whole spread, from near 0 to 10,000 |
The Herfindahl idea comes from competition economics. The US Department of Justice defines it as squaring each firm’s market share and summing, with a maximum of 10,000 when one firm holds everything. Here the “firms” are your positions. Dividing 10,000 by the score gives the effective number of stocks: the count of equal positions that would produce the same score.
What does an illustrative six-stock portfolio score?
The portfolio below is invented to show the arithmetic. The symbols are real PSX tickers; the amounts are not anyone’s holdings, and the example is not a suggestion to own any of them.
| Symbol | Sector | Value (Rs) | Weight | Weight squared |
|---|---|---|---|---|
| UBL | Commercial banks | 240,000 | 24% | 576 |
| FFC | Fertilizer | 200,000 | 20% | 400 |
| MEBL | Commercial banks | 160,000 | 16% | 256 |
| OGDC | Oil and gas exploration | 150,000 | 15% | 225 |
| LUCK | Cement | 150,000 | 15% | 225 |
| HUBC | Power generation | 100,000 | 10% | 100 |
| Total | 1,000,000 | 100% | 1,782 |
Reading it:
- Largest position: 24% (UBL).
- Top-3: 24% + 20% + 16% = 60%.
- Largest sector: commercial banks, UBL plus MEBL, 24% + 16% = 40%. The other sectors are 20%, 15%, 15% and 10%.
- HHI: 1,782. Divided into 10,000, the effective number of stocks is 5.6.
- Sector HHI: 40² + 20² + 15² + 15² + 10² = 2,550, an effective 3.9 sectors.
Six tickers behave like 5.6 equal stocks and 3.9 equal sectors. The gap between six and 3.9 is the two banks.
What happens when one holding drifts?
Nobody rebalances a portfolio every day. Suppose UBL doubles in value to Rs 480,000 while the rest stay put, so the total becomes Rs 1,240,000. UBL’s weight is now 480,000 ÷ 1,240,000 = 38.7%. Banks together are 640,000 ÷ 1,240,000 = 51.6%. Nothing was bought or sold, yet one position went from 24% to 38.7% and the bank sector crossed half the portfolio. Weights move with prices, which is why a one-off check at purchase is not enough.
What does a count of stocks do to the score?
If every position is equal, the Herfindahl score is simply 10,000 divided by the number of positions. This is pure arithmetic, and it carries no advice on how many to hold.
| Equal positions | Weight each | HHI | Effective stocks |
|---|---|---|---|
| 1 | 100% | 10,000 | 1 |
| 3 | 33.3% | 3,333 | 3 |
| 6 | 16.7% | 1,667 | 6 |
| 10 | 10% | 1,000 | 10 |
| 25 | 4% | 400 | 25 |
The score improves as names are added, but each extra name changes it less: going from 3 to 6 cuts the HHI by 1,667 points, and from 10 to 25 cuts it by 600. Equal weights are also the best case. In practice, weights are unequal, and the effective number is always at or below the count of tickers. The other limit is that the HHI cannot see correlation. Two stocks in one sector count as two, even if they move together.
What does the KSE-100 itself look like?
The KSE-100 is a useful ruler because it is a diversified basket by design, though it is not a target. The weights below come from SuperX’s snapshot of the 100 constituents, as of 9 October 2026, with sectors from the same dataset. See what the KSE-100 is and the full constituent list.
| Sector | Weight in KSE-100, as of 9 Oct 2026 | Constituents |
|---|---|---|
| Commercial banks | 30.8% | 14 |
| Oil and gas exploration | 12.7% | 4 |
| Fertilizer | 12.5% | 4 |
| Cement | 8.8% | 10 |
| Investment banks, investment companies, securities companies | 5.5% | 2 |
| Power generation and distribution | 5.2% | 5 |
Measured the same way, the index’s largest stock is 9.0% (FFC), its top three (FFC, UBL, MEBL) are 22.0%, and its largest sector is 30.8%. The stock-level HHI is about 339 (an effective 29.5 stocks), and the sector-level HHI is about 1,450 (an effective 6.9 sectors). Even the benchmark is bank-heavy. A portfolio that matches none of these figures is not wrong, only different from the index, and that difference is a choice worth knowing about. Mapping what moves the index is covered in KSE-100 heavyweights.
Funds are another route to a wider spread, because one unit holds many companies. SuperX lists them on the funds page.
What will the Portfolio Coach check?
SuperX’s Portfolio Coach, which comes with the app when it opens to first invited users on 23 November 2026, will run eight checks each time you open it. Four of them are about shape, and the help article states their thresholds:
| Check | Threshold stated in the help article | Severity |
|---|---|---|
| Position concentration | Any one stock at 30% or more; at 40% or more | Warning at 30%, alert at 40% |
| Sector concentration | 50% or more of the portfolio in one sector | Warning |
| Cash posture | 40% or more in cash; under 5% | Opportunity at 40% or more; warning under 5% |
| Holding count | Fewer than 3; more than 25 | Warning below 3; info above 25 |
The other four are the portfolio against the KSE-100, a halal-mix conflict when the halal-only filter is on, big movers of 5% or more in a day, and the top performer. The Coach is rules, not an LLM, and it does not say what to buy or sell. It describes what is unusual about how your portfolio is shaped.
Applied to the illustrative portfolio: the 24% largest position is under 30%, the 40% bank sector is under 50%, and six names sit between 3 and 25, so none of those checks would fire. After UBL doubles, the position check (38.7%) and the sector check (51.6%) both would. The Coach thresholds are blunt tripwires. The four numbers above show the spread more finely, and they cover the middle ground that the thresholds skip, such as a 60% top-3.
Frequently asked questions
How many stocks should I own to be diversified?
No single number is right, because diversification depends on weights and on whether the stocks share a driver. Equal weights across N stocks give a Herfindahl score of 10,000 ÷ N, but unequal weights or a shared sector make the effective number lower. SuperX’s Coach flags fewer than 3 holdings and more than 25 as the edges.
What is a Herfindahl index for a portfolio?
It is the sum of each position’s weight, in percent, squared. It runs from near 0 for a very wide spread to 10,000 for a single holding. Dividing 10,000 by the score gives the effective number of equal-sized positions.
Does owning two banks count as diversified?
It counts as two stocks and one sector. If both depend on the same interest-rate and credit conditions, sector weight is the better measure of the exposure.
Does the KSE-100 count as a diversified portfolio?
It holds 100 companies, but as of 9 October 2026 about 31% of its weight sat in commercial banks and 22% in its three largest stocks. It is broad, not even.
What will the Coach flag in my portfolio?
It will flag a single stock at 30% or more, and an alert at 40% or more. It will also flag 50% or more in one sector, cash at 40% or more or under 5%, and fewer than 3 or more than 25 holdings.
Try it
When the app opens on 23 November 2026, SuperX AI will run the Coach on your imported holdings, and the portfolio tracker will show the sector exposure beside them. Join the waitlist to be invited.
Education, not investment advice.
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