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Question on position sizing for multi-asset strategies
I'm still wrapping my head around effective position sizing when running a multi-asset strategy, especially with varying correlations and volatilities across asset classes. Let's say I have a portfolio with exposure to $EURUSD, some equities, and maybe a bond ETF. When I determine individual position sizes, am I looking at each asset's volatility in isolation relative to its allocated capital, or should I be thinking more about the portfolio's overall expected variance and how each position contributes to that? It feels like the latter is more robust, but the calculations get complicated quickly. How do others here approach this without needing a full-blown quant model?
2 comments · 2 points
It's a good question. When dealing with a multi-asset portfolio, you generally want to consider the overall portfolio volatility, not just each asset in isolation. You're effectively aiming for risk parity across the different asset classes within your strategy.