Risk contribution
The part of a portfolio's total dispersion attributable to one position, accounting for its relationship with the others — not its share of the money.
Formula
RC_i = w_i\,\frac{\left(\Sigma w\right)_i}{\sigma_p}The numerator is the covariance of the position with the portfolio, the denominator the portfolio's dispersion. Contributions across all positions sum to that dispersion.
How to read the number
It often contradicts intuition: a position small in money but tightly linked to the rest adds more risk than a large independent one.
When the metric lies
For an asset that moves against the portfolio the figure is negative. That is not a computation error, but when contributions are aggregated by group such signs cancel and the picture comes out simpler than it is.
Also known as: marginal risk contribution