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Dispersion in Investment - Definition & Advantages of Dispersion | What is Dispersion?


Investment dispersion refers to how much individual returns in a portfolio deviate from the average. It's a measure of risk and performance, helping investors diversify and limit the effect of underperforming investments. 


Dispersion in investment is helpful in assessing portfolio risk. Higher dispersion means a wider range of returns, while lower dispersion indicates less variance. The goal is to minimize risk and optimize returns. 

Types of Dispersion Measurement:

There are two main types: 

Beta Dispersion: 

This method compares portfolio returns to a benchmark index. High volatility compared to the index indicates high beta dispersion. 

Alpha Dispersion: 

This method compares individual investment returns to the portfolio average. High differences signify high dispersion. 


  • Assesses investment risk.

  • Evaluates individual investment performance.

  • Useful for portfolio diversification and risk reduction.

  • Helps maximize returns and minimize risk.


Investment dispersion offers several benefits: 


Helps in deciding which investments to include in the portfolio based on their risk level, encouraging diversification. 

Risk Management: 

Identifies high and low-risk investments to manage portfolio risk exposure effectively. 

Performance Analysis: 

Allows for the evaluation of individual investment performance, informing buy or sell decisions. 

Maximizing Returns: 

Identifies high and low-return investments to optimize portfolio returns.