There are two types of variance generally associated with the phenomenon of racial residential segregation. One type involves differing racial compositions between spatial locations. The other is concerned with varying residential spatial distributions between ethnic groups. This paper presents a spatial analytical approach to identify and measure the two types of variance through a decomposition of an entropy index regarding racial diversity. A region's racial diversity entropy is found to comprise three factors: (a) the overall spatial distribution of regional population; (b) the ratio between the number of ethnic groups and that of spatial areal units within the region, and (c) the differential between two types of variance aforementioned. For demonstrative purpose census data from Los Angeles County are studied using this approach. The results suggest the second type of variance to be the primary contributor to the increasing racial diversity in Los Angeles. Implications regarding affordable homeownership and inclusionary housing policies are discussed accordingly.