bet-sizing
Bet Sizing
Purpose
Provides frameworks for determining how much capital to allocate to individual positions within a portfolio. Covers the Kelly criterion, fractional Kelly, risk budgeting, liquidity-based sizing, and conviction weighting. Proper bet sizing is critical — even a portfolio of good ideas can fail with poor sizing.
Layer
4 — Portfolio Construction
Direction
prospective
When to Use
- Determining the appropriate size for a new position
- Applying the Kelly criterion to a bet or investment with estimable odds
- Allocating a risk budget across active positions
- Setting maximum position sizes based on liquidity or risk limits
- Sizing positions proportional to conviction and edge
- Deciding the optimal number of positions in a concentrated portfolio
- Scaling position sizes with volatility changes
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