  We analyze the effect of realistic noise sources for an atomic clock
consisting of a local oscillator that is actively locked to a spin-squeezed
(entangled) ensemble of $N$ atoms. We show that the use of entangled states can
lead to an improvement of the long-term stability of the clock when the
measurement is limited by decoherence associated with instability of the local
oscillator combined with fluctuations in the atomic ensemble's Bloch vector.
Atomic states with a moderate degree of entanglement yield the maximal clock
stability, resulting in an improvement that scales as $N^{1/6}$ compared to the
atomic shot noise level.
