What is risk contribution?Risk Contribution
An exposure's share of the portfolio's total risk, taking its correlations with the other exposures into account.
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- Hedging StrategiesHedging a Multi-Asset Portfolio
A global portfolio is exposed to US stocks, European stocks, the euro and crude oil all at once. Switch on the hedges one by one and watch total risk come apart piece by piece.
- Quant BasicsRisk Parity: Allocating by Risk
60% stocks / 40% bonds looks balanced, but stocks are far more volatile, so over 90% of the portfolio's risk actually comes from stocks. Risk parity makes each asset class contribute the same amount of risk.
Related terms
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Go to “Hedging a Multi-Asset Portfolio”