Definitions
In plain terms
For volatility, a position's contribution depends on both its weight and how it covaries with the whole portfolio.
Technical
Volatility contribution for asset i is weight i times its marginal covariance term divided by portfolio volatility; contributions sum to portfolio volatility when conditions hold.
Scope
Risk contribution can be negative and differs across variance, volatility, expected shortfall, and other risk measures.
Formula
RC_i = w_i * (Sigma*w)_i / sigma_pRC_i=w_i(\Sigma w)_i/\sigma_p| Symbol | Meaning | Unit |
|---|---|---|
w_i | weight of asset i | decimal weight |
(Sigma*w)_i | marginal covariance term | return squared |
sigma_p | portfolio volatility | return volatility |
Output unit: return volatility
Examples
- A governed methodology records risk contribution with its source, cutoff, units, parameters, and effective version.
Common misconceptions
- Risk Contribution does not have one universal implementation without the declared methodology, data basis, and constraints.
Concept relationships
Prerequisites
Related
Required by
Where this concept is used
Evidence and governance
- On the Properties of Equally-Weighted Risk Contributions Portfolios The Journal of Portfolio Management · first party technical publication
Supports: preferred label, short definition, technical definition, formula
Limits: Covariance estimation, constraints, convergence, turnover, and index-provider implementation remain governed choices.
- Fintech Builder Glossary Definition Contract The Fintech Builder · internal governed contract
Supports: variant distinction
Limits: Defines governed platform behavior rather than claiming these policies are universally prescribed by external McClellan methodology.
- Reviewed by
- fintech-builder-batch-004
- Last reviewed
- 2026-07-27
- Next review
- 2027-07-27
- Record status
- evidence reviewed
This record is evidence-reviewed and readable, but not yet promoted to published — it is served noindex,follow and excluded from the sitemap.