In the context of the Fundamental Law of Active Management, breadth (N) is the number of independent alpha-generating bets a strategy makes per year. The Fundamental Law states:
IR ≈ IC × TC × √N
This square-root relationship means that doubling the breadth (while maintaining the same IC and TC) increases the Information Ratio by a factor of √2 ≈ 1.41. Expanding the asset universe or increasing trading frequency can compensate for modest signal skill.
What counts as an independent bet?
Breadth is not simply the number of assets or trades — it is the number of statistically independent decisions. Stocks in the same sector with correlated returns do not each contribute a full independent bet. High cross-asset correlations, or highly correlated signals applied to the same universe, reduce effective breadth below the nominal count.
Estimating true breadth requires modeling the correlation structure of the opportunity set. In practice, managers with broad, diversified universes (e.g., all large-cap global equities) have naturally higher breadth than concentrated portfolios.