Quick Note: Position Sizing Heuristic

The Formula

Position Size = (Target Portfolio Vol × Portfolio Value) / (Signal Vol × √N)

Where:

• Target Portfolio Vol = your annual vol target (e.g., 0.15 for 15%)
• Signal Vol = historical volatility of the strategy signal
• N = number of uncorrelated signals in the portfolio

Why This Works

1. Volatility targeting — keeps portfolio risk stable across regimes
2. Diversification benefit — √N accounts for correlation reduction

Example

Position Size = (0.15 × 100,000) / (0.25 × √4) = $30,000

Start with $30k notional, then adjust based on real-time correlation monitoring.

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Notes are short, actionable insights. Not financial advice.