Research On the Application of Mean-entropy Index in the Risk Diversification of Portfolio——Based on Principal Component Analysis

In the field of stock and bond investments that with high risk, diversification is a significant technology for reducing investment risk. However, it is not always true that the more diversification the more investment benefits. The author based on the Markowitz mean-variance model, the author firstly introduced the information entropy through the method of principal component analysis, and then taking the information entropy as the measure of diversification degree of portfolio, So that the mean-entropy index effective frontier becomes the most-diversified portfolio under certain investment return, the author provides the investors with an effective balance between diversification and return.