Risk budgeting
Allocating permitted dispersion rather than money: it is decided in advance how much of the portfolio's total risk each strategy or position may occupy.
How to read the number
It changes the question being asked: instead of how much to invest, one asks how much fluctuation this component is allowed to produce, and the weights follow from the answer.
When the metric lies
A budget set once drifts on its own: after a strong move a position's share of risk changes without a single trade, and without recalculation the limit exists only on paper.
Also known as: risk budget