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Multiple Dimensions of Risk

Multiple Dimensions of Risk

StratiFi’s PRISM technology is designed to function as an in-house portfolio risk manager. Today, PRISM analyzes portfolios for exposures to four key dimensions that are widely acknowledged as leading indicators of risk, and thus reward volatility, diversification, concentrated-stock risk, and tail risk. These factors are designed to identify exposures that may permanently take a client off-plan. Additional dimensions of risk such as liquidity risk and credit risk are in research and development.

PRISM is aimed at systematically quantifying that risk in the form of a set of scalar scores. Just like any statistical estimator (e.g. the mean 𝜇 of a sample), it tries to summarize a highly complex multi-dimensional problem into a 4-dimensional scalar space and thus efforts must be made on the interpretation of the results.

One of the greatest values of PRISM is that it already guides those interpretation efforts by fixing the 4 dimensions of the resulting space into pre-defined, meaningful, actionable risk exposures:

  • Volatility risk 
  • Tail event risk 
  • Diversification risk
  • Concentrated Stock risk 

Inherent heteroscedasticity of the markets obviously limits the correlation between historical and future volatility but it is always reasonable to assume that this correlation, though stochastic is non-zero, which makes PRISM valuable. Equally important, it allows the end-user to break down the risk into 4 different risk-exposure dimensions, therefore granting them the choice of acting on either or all of them. 

Our PRISM™ risk analysis software uses a blend of risk tolerance questionnaires, historical market events, and current market signals to provide advisors with all the data they need to know their customers and plan accordingly. Contact us to find out how StratiFi can help your practice and clients monitor risk across all investment holdings regardless of market conditions.

Akhil Lodha Author
Co-founder & CEO StratiFi Technologies

Building the industry standard for understanding portfolio risk through cutting- edge technology at Stratifi.

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Additional Advisor Resources

Bob Veres features StratiFi in ‘Inside Information’ February 2022 Edition

Bob asks, “Is it really possible that a portfolio risk assessment tool for wealth managers could be as sophisticated as the algorithms that institutional teams are using?”

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