RT Journal Article
SR Electronic
T1 Risk Contribution Is Exposure Times Volatility Times Correlation: <em>Decomposing Risk Using the</em> X-Sigma-Rho <em>Formula</em>
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 97
OP 106
DO 10.3905/jpm.2011.37.2.097
VO 37
IS 2
A1 Jose Menchero
A1 Ben Davis
YR 2011
UL https://pm-research.com/content/37/2/97.abstract
AB Menchero and Davis present a flexible and general framework for attributing portfolio risk to the same decision variables used to attribute portfolio return. For each return source, the authors decompose the risk contribution into a product of exposure, volatility, and correlation. Their method is a generalization of the marginal contribution to risk approach. In addition to providing a highly intuitive risk attribution, the authors’ approach also allows drilldown capability into the volatility and the correlation, thus providing even greater insight into the sources of portfolio risk.TOPICS: Risk management, portfolio theory, factor-based models