Sector share of risk
How much of the portfolio's volatility comes from each sector, rather than how much money is in it.
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Where it misleads
Money and risk part company here more than anywhere: a sector with a third of the money and two thirds of the risk is normal when its holdings move more, and together. And a sector's share can be negative, when its holdings move against the rest.
How it is computed here
The shares of risk of the holdings in that sector, added up. Euler's decomposition is linear, so grouping before or after the calculation gives the same number, and the sector table always agrees with the position table. Sectors come from each company's SEC industry code, grouped into eleven; a holding without a code is shown as not classified.
Worked example
- Each holding is placed in the sector of its SEC industry code: ARB → Industrials, AUV → Commodities, HLX → Technology, KYP → Financials, ORB-USD → Digital assets, VRD → Utilities, UST 2.250% 2031-02-15 → Bonds.
- The shares of risk of the holdings in Technology are added up: 62% = 62%
- Technology holds 30% of the money and carries 62% of the risk.
Demo portfolio: seven invented holdings, generated prices, measured by the real engine. Past returns do not predict future ones.
Where it misleads
Money and risk part company here more than anywhere: a sector with a third of the money and two thirds of the risk is normal when its holdings move more, and together. And a sector's share can be negative, when its holdings move against the rest.