Portfolio Concentration Risk
Concentration risk can dominate drawdowns even when a portfolio holds many names.
Where Concentration Builds
- Single-name overweights can drive a disproportionate share of downside.
- Sector and theme overlap can create hidden concentration.
- Correlation clusters matter more than ticker count.
How to Reduce It
- Cap risk contribution of top holdings and top clusters.
- Diversify with lower-correlation sleeves, not redundant names.
- Rebalance using target bands and risk-budget limits.