Portfolio Volatility
Volatility is the variability of returns and a core input for risk budgeting and optimization.
Main Volatility Drivers
- Single-name concentration raises idiosyncratic volatility risk.
- High-beta clusters can amplify downside in risk-off regimes.
- Correlation shifts can increase total portfolio volatility unexpectedly.
Reducing Volatility Drag
- Diversify by risk driver, not ticker count alone.
- Rebalance when contribution to risk drifts above policy.
- Use optimizer constraints to keep risk profile stable.