Category Risk (Stand-Alone)

the category risk provides a baseline measure of risk for each individual sub portfolio (e g , all holdings classified as 'equity') metric calculation principle category volatility the calculated volatility (standard deviation) of the sub portfolio's return series category var the var of the sub portfolio's return series category cvar the cvar of the sub portfolio's return series, or the expected loss in the tail of the sub portfolio's return distribution calculation the system first isolates the returns of all assets belonging to a specific category (like the returns of all 'crypto' holdings, weighted by their allocation in the full portfolio) it then calculates the stand alone risk measure (volatility, var, or cvar) on this aggregated sub portfolio return series interpretation this value tells you the absolute risk inherent to the asset class itself it is useful for benchmarking the inherent riskiness of one category against another, but it does not account for how that category interacts with the rest of the portfolio (i e , its diversification effect) since it is calculated in isolation, the sum of all category risk values will typically be higher than the total portfolio risk, with the difference representing the total diversification benefit achieved by combining them