How is risk aggregated by Liquidity?¶
Risk in the context of this document is defined as marginal contribution to total portfolio risk (MCTR). Please read definitions here: Risk Attribution
Everysk always calculates MCTR per individual position. Then, we can aggregate according to various bucketing schemes, such as liquidity.
The liquidity of each position is defined as days to unwind (DTU):
DTU = shares / (participation * volume)
Where:
- shares is the amount that will be unwound (full unwind)
- participation is 20%
- volume is the averaged traded volume (in shares) during the last 20 days
Then we aggregate and label positions according to proportion of a day to unwind:
| Label | DTU (% of a day) | Meaning |
|---|---|---|
| 0-5% | 0-5 | very liquid |
| 5-25% | 5-25 | |
| 25-50% | 25-50 | |
| 50-100% | 50-100 | |
| 100-300% | 100-300 | |
| >300% | >300 | very illiquid (more than 3 days to unwind) |
These labels appear on certain templates that aggregate risk per liquidity.