Standalone risk is not contribution risk

Change three standalone volatilities and correlations. Inverse volatility uses only the first; the covariance diagnostic observes the second. The contrast is useful only after the input audit passes.

Teaching sequence

Step through the causal order: audit evidence, construct A01 weights, inspect covariance risk, then route explicit boundaries.

1. AuditIDs · units · evidence
2. A01m / σ · weights
3. RiskΣw · q · shares
4. Boundaryzero · near-zero · block
Four-stage inverse-volatility diagnostic sequence A live teaching rail highlights audit, A01 construction, covariance risk, and explicit boundary routing in order. AuditA01RiskBoundary

Stage 1 of 4: audit evidence before arithmetic.

1. Input audit

Risk unit: decimal simple return per daily synthetic period. The covariance diagnostic uses this declared scale; no annualization is inferred.

2. Change the synthetic inputs

3. A01 construction

The reciprocal products should be equal when the inputs are valid. This is standalone risk, not covariance risk.

Reciprocal scores and weights
Assetσm / σA01 weightwσ

On a narrow screen, scroll this table horizontally to inspect every column.

4. Covariance diagnostic


      
v = Σw
q = wᵀv
RCᵢ = wᵢvᵢ / √q
shareᵢ = wᵢvᵢ / q
Named risk unit: decimal simple return per daily synthetic period; σₚ and RC use that unit.

    

    

      
Standalone product versus covariance contribution
AssetwσRCRisk shareShare bar

      
On a narrow screen, scroll this table horizontally to inspect every column.

    

    

  


  

    
Boundary card

    

      
Market value
Q × local mark × FX(base/local)
A currency conversion is not cost basis and is not a return covariance estimate.

      
Local versus base return
(1 + r_local)(1 + r_FX) − 1
FX variance and the local/FX cross term belong in a base-currency risk panel.

      
Decision safety
A split-invalid mark, stale FX, or suspect quantity blocks an evidence-backed rebalance conclusion. This lab never invents a trade.