How many bets survive stress? Retained diversification in asset allocation

<title>Abstract</title> <p> We study diversification-collapse risk, the loss of latent diversification when a fixed portfolio is exposed to adverse dependence states. We introduce stress-retained effective number of bets (ENB), which measures the diversification preserved across scenarios formed from information available at portfolio formation. ENB-at-Risk and Conditional ENB Shortfall summarize the lower tail of retained diversification. Stress-retained ENB declines in broad financial-stress states, ranks comparable portfolios by their subsequent downside risk, and provides a better relative characterization of the realized retained-ENB distribution than current-covariance ENB. <bold>JEL classification:</bold> G11; G17; C53 </p>