CFA Level 3 | Equity: Absolute Risk Attribution

CFA Level 3
Topic: Equity Portfolio Management
Reading: Active Equity Investing: Portfolio Construction

Correction:
At time 11:00, I calculated the contribution of Asset B to total variance as 0.5165 (as I rounded the covariances to 4 decimal places). From 12:41 onwards, in the video I used the contribution of Asset B to total variance as 0.5175 (this was because I used all the decimal places in the covariances, not shown here). For purpose of exam, stick to 0.5165.

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When you have a portfolio of n-assets, we use the absolute risk attribution to estimate the contribution of each asset to the portfolio variance. We use a 3-asset portfolio to illustrate the calculation of:

1) variance and covariance terms of each asset.
2) contribution of each asset to the total portfolio variance.
3) the %contribution of each asset to the total portfolio variance.
4) the portfolio standard deviation.

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[irakumar]

Your Level III videos are unmatched, Fabian! Thank you!

[wisemintapp]

Well done - but what about when there are buys/sells during the time period?

[johnchung]

Understood the whole concept but just FYI - I think the last table showing the absolute amount of B's total contribution to total variance of the portfolio should be 0.5165 instead of 0.5175, thanks!

[johncarlolacerna]

Newbie here, What is the reference of the correlation? How to get those values? thanks