Exposure Analysis

A portfolio of 50 stocks can look diversified by count while having 80% of its risk in a single factor. Without exposure decomposition, you cannot distinguish between intended alpha bets and unintended factor tilts.

The Problem

Position weights tell you what you own, not what risks you are taking. A "diversified" tech-heavy portfolio may have a market beta of 1.4, a momentum loading of +0.6, and 60% sector concentration in technology - meaning most of its variance comes from three correlated bets, not 50 independent ones. Exposure analysis decomposes portfolio risk into factor loadings, sector weights, and concentration measures so you can verify that the portfolio matches your thesis.

The Pattern

WRONG

import numpy as np