How Concentrated Is Your Portfolio? The HHI Test

Feature Spotlights June 9, 2026 6 min read By Coinlio Team

Conviction is good. Concentration risk is something else.

Holding one coin at 40% of your portfolio is risky no matter how much you believe in it. If that coin drops 50%, your portfolio drops 20% — before you even look at your other positions. High conviction and high concentration are not the same thing, but they are easy to confuse.

The Herfindahl-Hirschman Index (HHI) gives you a single number that measures exactly how concentrated your portfolio is. Economists use it to measure monopoly power in industries. For a crypto portfolio, it measures how close you are to a single-coin bet.

💡 Tip

Coinlio calculates your HHI score automatically on the Insights tab. The ConcentrationRiskCard shows your score and a chip label so you can see where you stand at a glance.

What is HHI? (definition + formula)

HHI is calculated by squaring the portfolio weight of each asset and summing the results. Weights are expressed as decimals (0.40 for 40%), not percentages.

📝 Note

HHI = Σ(weight²)
Where weight = the fraction of your total portfolio held in each coin. A perfectly equal split across N coins gives HHI = 1/N.

Squaring the weights penalizes large positions heavily. A 40% position contributes 0.16 to your HHI. A 10% position contributes only 0.01. This means one over-weight coin can dominate your HHI even when you hold many small positions — which is exactly the point.

The range is 0 to 1. An HHI of 1.0 means 100% of your portfolio is in one coin. The lower the number, the more spread out your risk.

Worked example: 4-coin portfolio

Here is a typical beginner portfolio with 4 coins:

Coin	Portfolio Weight	Weight²
BTC	40%	0.16
ETH	30%	0.09
SOL	20%	0.04
ADA	10%	0.01
Total HHI	100%	0.30

HHI = 0.16 + 0.09 + 0.04 + 0.01 = 0.30. That is in the "highly concentrated" range. Even though you hold 4 coins, the BTC position alone contributes more than half of the total HHI.

Now compare to an equal-weight split: 4 coins each at 25%. HHI = 4 × 0.0625 = 0.25. Still concentrated by the thresholds below. To get to the well-diversified range (HHI below 0.15), you need roughly 7 or more equal-weight positions — or fewer positions with genuinely low correlation.

Four coins do not make a diversified portfolio. Equal weighting helps, but you need at least 7 truly independent positions to push HHI below the well-diversified threshold.

The HHI threshold scale

Below 0.15 — Well-diversified. Risk is spread across many positions. A single bad trade will not define your month.
0.15 – 0.25 — Medium concentration. A few larger positions dominate your returns. Normal for active traders with 5–8 coins.
Above 0.25 — Highly concentrated. One or two positions are carrying most of your risk. A single coin's bad news can significantly hurt your portfolio.

⚠️ Warning

A concentrated portfolio is not automatically wrong — but it should be a conscious choice, not an accident. If your HHI is above 0.25 and you did not intend for that, it is time to review your position sizes.

2 common mistakes that create false diversification

Diversifying across coins that move together

Holding BTC, ETH, SOL, AVAX, NEAR, and ATOM looks like 6-coin diversification. But in a risk-off market, all layer-1 tokens tend to fall together. HHI measures weight distribution — not correlation. You can have a low HHI and still be fully exposed to a single market event if all your coins are the same asset type. True diversification mixes asset categories: large caps, mid caps, DeFi, and stablecoins.

Counting stablecoins as diversification

Holding 30% in USDC lowers your HHI, but stablecoins do not offset crypto market risk — they just reduce your exposure to it. A portfolio that is 70% BTC/ETH and 30% USDC has an HHI of 0.58 (ignoring USDC). The stablecoin cushion is a liquidity buffer, not a diversification strategy. Both are useful, but they are different things.

Owning six coins in the same sector is not diversification — it is concentration wearing a costume.

How Coinlio computes HHI for you

Every time you add a transaction, Coinlio recalculates your portfolio weights and your HHI score automatically on the Insights tab.

The calculation uses current market values — not cost basis — so your HHI reflects where you actually are today, not where you started. If one coin has appreciated significantly and now dominates your portfolio, the HHI will catch that drift even if you never changed your allocation intentionally.

ConcentrationRiskCard — shows your HHI score with a chip label (Diversified / Moderate / Concentrated) and the threshold scale.
Rebalance alert CTA — when HHI is above 0.25, Coinlio surfaces a prompt to review your largest positions.
Per-coin weight breakdown — tap the card to see each coin's contribution to your total HHI so you know exactly where the concentration is coming from.

💡 Tip

To check your HHI: open Coinlio → tap Insights tab → scroll to the Portfolio Risk section. The ConcentrationRiskCard is the first card in that section.

What to do after you know your HHI

High HHI is a prompt to think — not necessarily to sell immediately. Here are the natural next steps:

HHI above 0.25 with large MDD? Concentration is the most likely driver. See Maximum Drawdown: The Brutal Math of Recovery to understand the risk you are already carrying.
Not sure how much to rebalance into each position? See Kelly Criterion: How Much Should You Bet on Your Next Trade? for a mathematical sizing framework.
HHI looks fine but still losing? Diversification reduces concentration risk but does not create trading edge. Check your Profit Factor for the edge question.

HHI does not tell you what to buy — it tells you whether your risk is spread out or piled into one bet. Use it as a regular check, not a one-time audit.

Open Coinlio → Insights tab → see your HHI score and concentration breakdown on your real portfolio. <a href="https://apps.apple.com/us/app/coinlio-crypto-tracker/id6761177479">Download on the App Store</a>.<br><br><em>Educational content. Not financial advice.</em>

📝 Note

Educational content. Not financial advice.

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