Portfolio Complexity Maps
Below is an example of a Portfolio Complexity Map. The map contains only the relevant inter-dependencies between stocks composing the portfolio thereby reflecting its true structure. Stocks having a dominant complexity footprint on the portfolio – the Complexity Drivers – are indicated via the larger boxes on the map’s diagonal.
In order to gain an in-depth understanding of the dynamics of a portfolio, it is paramount to comprehend how the structure of its Complexity Map evolves over time. The analysis of structural and dynamic aspects of portfolios or universes of assets is key to understanding the nature of volatility, risk, and to identifying precursors of market drawdowns.
The Portfolio Complexity Profile, see below, ranks portfolio components based on their complexity footprint within the portfolio. Securities at the top of the ranking are Complexity Drivers, meaning they impact negatively the volatility and degree of diversification of the portfolio. The Complexity Profile changes dynamically and is computed in real time, just like the corresponding Complexity Map.