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PART SEVEN - Defining and Managing Risk > CHAPTER 40 - Sector and Portfolio Ris...
CHAPTER 40
Sector and Portfolio Risk
I begin with the assumption that there is a high degree of positive correlation in many of the markets I trade, particularly in the currency and commodity arena.
As laid out in Chapter 36, I break my portfolio down into metals, petroleum, commodities, currencies, fixed income, and stock indexes (again, the entire exchange traded funds [ETF] breakdown is considered as a separate universe, with a different portfolio structure).
Then I break down each sector into the following subsectors:
• Fixed Income: Asia, European-Nordic, Anglo (United States, Canada, United Kingdom, Australia, New Zealand), Asian emerging markets, Eastern European emerging markets, and South American emerging markets.
• Foreign Exchange: U.S. dollar versus Asia, U.S. dollar versus Europe, U.S. dollar versus commodity producers, U.S. dollar versus emerging market currencies, Japanese yen versus global currencies, Eurocurrency versus Eastern European, Nordic, and Asian currencies.
• Stock Indexes: Asia, Europe, Anglo, emerging markets.
• Metals: Precious metals, platinum group metals, industrial base metals, specialty metals (rhodium, titanium), mining shares.
• Petroleum: Crude oil and petroleum products, natural gas, energy shares.
• Agricultural commodities: Oilseeds sector (soybean complex, vegetablepalm oils), grains (corn, wheat, rice, oats), livestock, tropicals (coffee, cocoa, sugar, orange juice), cotton, rubber.
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