Concentration✓ Mathematical
◆ The PatternHard caps on concentration to prevent catastrophic single-name losses
No matter how attractive a trade, position limits cap exposure. Common tiers:
| Level | Limit |
|---|---|
| Single name | 2-5 % of equity |
| Sector | 15-25 % |
| Asset class | 30-60 % |
| Total leverage | 1×-2× (risk parity may use more) |
Regulatory frameworks (UCITS, 40-Act) enforce their own diversification rules. Risk budgeting integrates position limits with volatility and correlation constraints.
// Position limits — concentration caps
Concentration kills. Archegos lost $20 B+ in days due to massive single-name concentration with leveraged swaps.
Pattern bridge: See Diversification for the quantitative benefit of spreading risk.