Risk Exposure Analysis

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When to use this

• Understanding what factors and themes your portfolio is exposed to
• Finding correlated risks across positions
• Stress-testing your holdings against a scenario
• Getting a clear picture of your real risk, not just position sizes

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Step 1: Map your exposures

Analyze my portfolio's risk exposure. Break down my exposure by sector, factor, and theme, and identify where my biggest concentrations of risk are.

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Step 2: Find correlated risk

Which of my holdings would move together in a downturn? Where am I exposed to the same underlying driver across multiple positions?

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Step 3: Stress-test a scenario

If [scenario, e.g. rates rise sharply / this sector sells off], how would my portfolio likely behave, and which positions are most at risk?

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Step 4: Decide whether to adjust

Given this risk picture, what's the single change that would most reduce my exposure to [the biggest risk], and what would I give up?

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Common mistakes

• Equating position size with risk. A small position in a volatile, correlated name can carry more risk than a large position in a stable one.
• Missing the common thread. Diversification by name is not diversification by risk. Look for the shared driver.
• Stress-testing only the obvious. Test the scenario you are not worried about, not just the one you are.

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Prompt variations

What's my portfolio's exposure to [specific factor, e.g. interest rates, the dollar, a single end market]?

If my largest position fell 30%, what would happen to my overall portfolio, and is that an acceptable risk?

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Related

• Portfolio Monitor Skill — the workflow behind this guide
• Portfolio health check — the broader review
• Rebalancing strategies — acting on the analysis