Risk Attribution¶
This widget visualizes the risk concentrations of a portfolio under normal market conditions. Use it to understand which positions contribute most to overall portfolio risk — as opposed to the Stress Test widget, which isolates behavior under extreme conditions.
How It Works¶
Risk attribution specifies each security's contribution to overall portfolio risk. Summing individual security risks does not equal total portfolio risk because it ignores correlation. Securities that are highly correlated with the portfolio are riskier, since they co-move with the rest of the portfolio and offer little diversification. Negatively correlated securities, by contrast, reduce risk by acting as hedges.
Everysk uses Marginal Contribution to Total Risk (MCTR) for risk attribution. MCTR accounts for three characteristics:
| Driver | Higher MCTR | Lower MCTR |
|---|---|---|
| Allocation size | Larger | Smaller |
| Individual volatility | Higher | Lower |
| Correlation to portfolio | More correlated | Less correlated (negative) |
A key property of MCTR is that the individual contributions sum to total portfolio risk.
Widget Components¶
The widget has two components:
- Stacked bar chart — each bar represents a source of risk (individual position, sector, market cap, country, liquidity bucket, or custom basket, depending on aggregation). Red bars stack upward and represent correlated risk sources; blue bars stack downward and represent uncorrelated or hedging positions. Bars are sorted left to right by absolute value.
- Annualized volatility figure — shown in the upper right corner. A horizontal blue line across the chart marks this level; by design, the cumulative height of the rightmost stacked bar should reach this line.
Tooltip¶
Moving the mouse over the chart shows a popup with:
| Field | Description |
|---|---|
| MCTR | Marginal contribution to annualized portfolio volatility from this position |
| Cumulative Volatility | Running sum of MCTR from left to right; the rightmost bar equals total portfolio risk |
| Percent | This position's MCTR as a share of total portfolio risk |
| Cumulative Percentage | Running sum of the above; reaches 100% at the rightmost bar |