Portfolio Concentration Stress Test
The model decomposes a simple correlated shock. It shows why the weight and co-movement of holdings matter more than ticker count.
What it calculates
Holding many tickers does not guarantee diversification when one company or sector drives the result. Enter portfolio value, largest-position weight, total sector weight, and scenario declines to estimate the portfolio-level loss and the contribution from the biggest holding.
How this portfolio concentration stress test works
The largest holding is modeled inside the selected sector. The calculator applies one decline to that holding, a second to the rest of the sector, and a third to all remaining assets.
Formula
Portfolio loss = largest weight × largest decline + remaining sector weight × sector decline + other weight × other decline
Real correlations change during stress, and holdings can gap, halt, or recover at different speeds. This is a transparent scenario rather than a statistical VaR model.
Primary specifications
Before you use the result
Assumptions
- • The largest holding is part of the entered sector weight.
- • Weights sum to the full portfolio and do not change during the shock.
- • The scenario excludes leverage, taxes, liquidity, and currency effects.
Quick start
- 1. Enter current portfolio and concentration weights.
- 2. Choose a severe but interpretable set of declines.
- 3. Repeat with different correlations and compare the loss with your risk capacity.
Inputs and units
| Input | Unit | Default |
|---|---|---|
| Portfolio value | US dollars | $100,000 |
| Largest position weight | percent | 20% |
| Total sector weight | percent | 40% |
| Largest position decline | percent | 40% |
| Other sector decline | percent | 25% |
| Rest of portfolio decline | percent | 8% |
Worked example (hypothetical)
Portfolio Concentration Stress Test: worked example
Hypothetical example using the calculator's default inputs. The numbers are illustrative, not a forecast or a quote.
| Portfolio value | $100,000 |
|---|---|
| Largest position weight | 20% |
| Total sector weight | 40% |
| Largest position decline | 40% |
| Other sector decline | 25% |
| Rest of portfolio decline | 8% |
| Estimated portfolio loss | 17.80% |
|---|---|
| Stressed portfolio value | $82,200 |
| Loss from largest holding | 8.00% |
With these inputs, the estimated portfolio loss is 17.80%.
Frequently asked questions
Is owning many stocks automatically diversified?
No. Funds and stocks can share the same companies, sectors, factors, currencies, or macro drivers.
What decline should I test?
Use several scenarios tied to the volatility and business risks of the holdings rather than one generic market decline.
Is this value at risk?
No. It does not assign probabilities or estimate a return distribution; it applies the explicit shocks you enter.
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