Risk & Portfolio Glossary

Portfolio Health Score

A 0–100 score (model portfolio_health_score@2.1.0) combining six weighted convex penalties: volatility, tail risk (CVaR), concentration (largest-position and top-5 weight), correlation stress, drawdown, and data confidence (a data-quality proxy covering history depth, outliers, and coverage — NOT market liquidity). Higher is better.

Concentration Risk

When too much of your portfolio is in one stock or sector. If that holding drops, your whole portfolio is hurt.

Correlation

How closely two assets move together. High correlation = they tend to rise and fall at the same time, reducing diversification benefit.

Drawdown

The drop from a portfolio's peak value to its lowest point before recovery. A 20% drawdown means you lost 20% from your high.

Max Drawdown

The largest historical decline from peak to trough. Used to understand worst-case historical performance.

VaR (Value at Risk)

The maximum loss you'd expect on 95% of trading days. Doesn't tell you how bad the worst 5% of days could be.

CVaR / Expected Shortfall

The average loss in the worst 5% of scenarios. More informative than VaR for tail risk.

Volatility

How much an asset's price fluctuates. Annualized volatility of 20% means the asset typically swings ±20% over a year.

Beta

How sensitive your portfolio is to market moves. Beta of 1.2 means you move 20% more than the market.

Alpha

Return above (or below) what the market would explain. Positive alpha means you outperformed on a risk-adjusted basis.

Sharpe Ratio

Return per unit of risk taken. Higher Sharpe = better risk-adjusted performance.

Market Regime

The current "state" of markets: Risk-On (bullish), Risk-Off (defensive), Volatile, or Transitioning.

Decision Readiness Score (DRS)

Measures whether your current emotional and analytical state is well-suited for making portfolio decisions. Considers overtrading history, rule violations, and market stress.

Tail Risk

The risk of extreme, unlikely events causing large losses — the "tails" of the return distribution.

Rebalancing

Adjusting your portfolio back to target allocations after drift from price changes.

Diversification Ratio

A measure of how much risk-reduction benefit your asset mix provides. Higher ratio = better diversification.

Liquidity Risk

The risk that you can't sell an asset quickly at a fair price when you need to.

Guardrail

A personal limit you set (e.g., max 40% in one stock) that the system monitors. Not enforced — purely observational alerts.

Factor Exposure

How much your portfolio is tilted toward growth, value, quality, momentum, or other return-driving characteristics.

Stress Test

Deterministic application of a fixed shock vector per scenario (e.g. 2008 GFC, COVID 2020 crash, 2022 rate shock, liquidity shock) to your current positions, where the headline equals the sum of holding-level impacts. A separate heuristic uses scenario/regime correlation assumptions for illustrative context; it does not change the headline or establish a measured loss reduction. The same complete inputs and model version produce the same numerical result. Not a probability simulation — it does not draw random paths and does not use Student-t or Cholesky.

Monte Carlo Simulation

Probabilistic path simulation that draws thousands of possible future return paths using Cholesky-correlated shocks (with optional Student-t fat tails) and reports the resulting outcome distribution. Different from a Stress Test — Monte Carlo is probabilistic, the Stress Test is a deterministic shock scenario.

Scenario Comparison

Placing two portfolio states side-by-side to see how a proposed change would affect risk and return metrics.

Tax-Loss Harvesting

Selling losing positions to realize losses that offset gains elsewhere, potentially reducing your tax bill.

CAGR (Compound Annual Growth Rate)

Your annualized return, accounting for compounding. More accurate than simple averages over multiple years.

Decision Cost Index (DCI)

A comparison of the potential cost (drawdown × recovery time) of acting now vs. waiting, expressed as a relative score.