Where n is the number of assets in the portfolio and cov(ri,rj) is the covariance between security i and security j. Where sigma is the volatility of the portfolio and wi is the weight of the security for which we want to calculate the MCTR.įirst, we need to define the portfolio standard deviation The MCTR of a security to a portfolio can be expressed as follows “Marginal” refers to the incremental risk that is introduced if we would increase the position in a security by a very small amount. What is marginal contribution to risk? MCTR is a very useful measure to determine how much a security is contributing to overall portfolio risk. It is possible compute the marginal contribution to risk in Excel. On this page, we discuss the marginal contribution to risk definition and formula and provide a marginal contribution to risk example. It can easily be calculated provided we have the covariance matrix and weights of all the securities in the portfolio. Essentially the MCTR measures the marginal amount of risk an individual security contributes to overall risk. The Marginal contribution to Risk (MCTR) is a risk measure that is very useful when assessing a portfolio’s riskiness. Present Value of Growth Opportunities (PVGO).
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