Who this is for — Anyone moving from single-trade control to a portfolio-wide view. Crucial to avoid unexpected losses from the combined effect of seemingly separate positions.
In plain terms — Aggregate risk is the total risk you carry after summing all exposures, including how they interact.
Prerequisites — Complete silver-path first (min.: position-sizing, trading-plan, drawdown, diversification). Foundation: bronze-path.
Components of aggregate risk
Total risk depends on size, volatility, correlation, and implicit leverage. Even good strategies individually can create fragility when too aligned. That is why you need a unified metric beyond "trade by trade". The reading always includes gross-exposure and system-correlation.
Example — Three strategies each within individual limits. During a macro event correlation rises, all lose together, and total drawdown exceeds the expected threshold. The problem was aggregate risk, not individual trades.
Governance and dynamic limits
Aggregate risk should be monitored in real time or at least at end of day. If it exceeds the threshold, priority is to reduce overall exposure, not seek new entries. A sound framework defines automatic reduction and suspension triggers. risk-parity logic can help distribute risk better ex ante.
Card
- What it is: measure of overall operational portfolio risk.
- How to use it: set global limits and immediate corrective actions.
- Typical mistake: managing each position well but ignoring combined effect.
Gold path — Module: Portfolio and allocation. Part of gold-path.