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Risk Budgeting: Concept, Interpretation and …
217538 8/11/2005 Risk Budgeting: Concept, Interpretation and ApplicationsNorthfield Research Conference 2005 Eddie Qian, PhD, CFAS enior Portfolio Manager260 Franklin StreetBoston, MA 02110(617) 439-63271217538 8/11/2005 The Concept Risk contribution attribution of total risk to individual underlying components of a portfolio in percentage terms Examples Fixed income portfolio: sector risk, yield curve risk, .. Equity portfolio: systematic risk (risk indices/industries), specific risk, .. Asset allocation: TAA risk (stock/bond, cap rotation, ..), sleeveactive risk, .. Manager selection, strategy allocation Asset allocation portfolio: beta risk from stocks, bonds, commodities, .. Parity portfolios Risk Contribution 2217538 8/11/2005 The Concept A simple illustration Two active strategies strategy A at 1% active risk, strategy B at 2% active risk, two sources uncorrelated Total active risk Equals What is the risk contribution from strategy A and B?
217538 8/11/2005 Risk Budgeting: Concept, Interpretation and Applications Northfield Research Conference 2005 Eddie Qian, PhD, CFA Senior Portfolio Manager
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