What It Is
Risk Scaling is an allocation method that adjusts position sizes based on each asset’s or model’s volatility. The objective is to prevent highly volatile components from dominating the portfolio, resulting in a more balanced and risk-aware allocation.
What It Does in Fincanva
Logic: Capital is allocated inversely to volatility—assets or models with lower volatility receive more capital, while riskier ones receive less
Simulation Behavior: At each rebalance, volatilities are estimated and weights are recalculated to reflect the inverse risk profile
Pros
Reduces concentration in highly volatile assets or models
Promotes stability and smoother equity curve over time
Simple and effective way to incorporate risk-awareness
Useful for creating conservative strategies without sacrificing diversification
Cons
May underweight high-return assets that also exhibit higher volatility
Relies on accurate and up-to-date volatility estimation
Does not consider correlations between assets
More rebalancing may be required if volatility changes frequently
Where You Can Use It
Portfolios: Yes - Positive weights only
Models: Yes
When to Use It
Best when building risk-aware strategies
Useful for investors who want to avoid overexposure to volatile assets
Effective for smoothing returns and reducing drawdowns
Ideal for conservative strategies or when combining diverse asset classes
Example
If Asset A has 30% annualized volatility and Asset B has 10%, Risk Scaling will allocate three times more capital to Asset B than to Asset A, giving preference to the lower-risk asset.
Plan Access
Portfolios: Available on Advanced, Ultimate, and Professional plans
Models: Available on Advanced, Ultimate, and Professional plans
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