Attributing for Risk in Portfolio Management
Risk contribution helps quantify how much each asset in a portfolio contributes to its overall risk. However, unlike with portfolio returns, a key aspect of portfolio risk is that its measures —like volatility— must adhere to certain statistical properties such as monotonicity, sub-additivity, homogeneity, and translation invariance. The non-linear nature of these formulae therefore makes it a chellenge to split apart and determine individual contributions of each asset to the overal portfolio risk.
