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Knowing the absolute or relative level of portfolio risk is only part of the story. It is important also to know the source of the risk, as it is possible that the aggregate risk level could be within the target range but the sources of risk may not be as the manager intends or not consistent with the mandate.

Identify the sources of risk

Excerpt makes it possible to identify the risk in a portfolio using innovative risk attribution techniques. Risk may be attributed to the market, countries, sectors, user-defined categories, user-defined attributes, and individual holdings. The system will project the portfolio’s risk on to the underlying exposures, using Marginals and Relative Marginals to determine the effect of trading any of these attributes

Risk attribution that is relevant to your investment style

Many asset managers have their own views on how securities should be classified by, for example, country, sector or fundamental attribute. Excerpt’s open system approach allows user to import their values for these and other measures so that the risk attribution is relevant and meaningful.

Separate risk attribution from the construction of the risk model

It is often desirable to attribute risk to fundamental valuation characteristics as these are the metrics typically used by fund managers when considering the excess return potential of individual holdings. An advantage of a purely statistical, APT style, approach to building a risk model is that none of the risk factors are derived from the same fundamental data. This both increases the flexibility of the system to accommodate user selected risk attributes and also reduces any overlap between alpha measures and risk measures.

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