XV · Portfolio construction
Station XV of The Quant Map: from forecasts to risk. Vol targeting, drawdown rules, Kelly. Reading order plus the free map PDF.
from forecasts to risk: budget it, do not just add it
Budget a portfolio volatility, cut every position when realized vol doubles, cap one name's share of risk, and write the drawdown rule before the drawdown. Signal quality and portfolio quality come apart: a real signal with the wrong weights is a bad portfolio. Overbetting is the failure mode the Kelly fraction exists to refuse.
The book, not the signal, decides survival: a real edge with wrong weights is a bad portfolio. Budget risk like money, because it is.
The Quant Map PDF works this spine through example research: five full descents from observation to live rule, and a library of 835 strategy entries, each with a named payer and a named failure mode. Get the free PDF on the Start Here page.
Reading order
Top to bottom. Stop at the first article you cannot apply to a live trade; that is the one to read slowly.
| Article | Why it is on this row |
|---|---|
| Why Volatility-Adjusted Position Sizing Matters | Size to risk. Equal vol contribution stops one pair owning the book. |
| Why Portfolio Construction Is Part of the Signal | The weights change the equity curve as much as the forecast does. Treat them as part of the recipe. |
| The Difference Between Signal Quality and Portfolio Quality | A good score and a good book fail for different reasons. Diagnose the layer you broke. |
| Drawdown Is Not Just a Number: It Is a Diagnosis | Depth, length, and whether the other systems are fine. Those three say different things. |
| When a Drawdown Means the System Is Broken | Compare the live drawdown to the historical distribution you wrote down. The 95th percentile is a line you can put on a chart. |
| Kelly Rejects Bad Trades Automatically: Why Overbetting Kills and Underbetting Doesn't | The fraction refuses a bad price. Half-Kelly is the version that survives an error in your own edge estimate. |
On the map: ← XIV · Alpha ensembles · The grand map · XVI · Implementation →