Log in to see Cloud of Tags

Wealth-Lab Wiki

Portfolio Heat

The term "portfolio heat", coined by Ed Seykota and Dave Druz, means the total risk to which a portfolio is exposed. This PosSizer calculates the portfolio heat by summing up the values of all open positions - allowing for use with systems without clear RiskStopLevels defined.

Select between the Wealth-Lab's three standard choices: fixed dollar, percent equity, or max percent risk, and limit the total risk of your portfolio with this PosSizer. A value in the 20-25% ballpark is a generally accepted value for a maximum level for portfolio heat.

Additionally, it's possible to treat long and short risk separately. Note: the maximum heat % takes precedence over long/short risk if, combined or either one of them, they're greater than the allowed max equity risk %.


Important Disclaimer: The information provided by Wealth-Lab is strictly for informational purposes and is not to be construed as advice or solicitation to buy or sell any security.  The owner of Wealth-Lab.com assumes no liability resulting from the use of the material contained herein for investment purposes. By using this web site, you agree to the terms of this disclaimer and our Terms of Use.

ScrewTurn Wiki. Some of the icons created by FamFamFam.