Hi. I was wondering if anyone can suggest a way to measure the risk of a portfolio as compared to SP 500. If beta of SP 500 is 1, what kind of calculation can I perform to assign a beta to my portfolio. I hold stocks both long and short. Thanks
There are a few formulas and one is ATR based unit per amount at risk. If the amount at risk percentage increases due to portfolio "heat" one has to cut back. (if you take a big drawdawn your percentage of risk can't be maintained so you must cut back in order to keep the risk parameters) So the idea is you have a same unit risk on a portfolio of futures. There should be provisions for unrelated items in the portfolio or the non unrelated items should have negative weighting. (i.e. silver and gold both long should be accounted as double risk for that category. ) The unit is calculated based on 1-2 percent risk and divide that with the running average of the ATR to figure out the unit risk per item. Add to this formula OI and volume weighting and you will have a decent system.
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