Back to Finance

Volatility Target Position Size Calculator

Calculate position size based on target portfolio volatility, asset volatility, and correlation for risk targeting.

Volatility Target Position Size Calculator

Calculate position size based on target portfolio volatility, asset volatility, and correlation for risk targeting.

$
%
%

Related Calculators

Risk-based position sizing

Position Sizing

Risk-based sizing.

Kelly Criterion

Optimal betting size.

Minimum Variance Portfolio

Lowest risk allocation.

Mean-Variance Optimization

Efficient allocations.

Guide

Using volatility targeting for risk-based position sizing

  • Volatility targeting sets position sizes to achieve a target portfolio volatility level, helping manage risk consistently across different assets.
  • Position weight ≈ Target Volatility / Asset Volatility (simplified). Higher asset volatility requires smaller positions to maintain target volatility.
  • Correlation with existing portfolio affects position sizing. Higher correlation increases portfolio volatility, requiring smaller positions.
  • Target volatility depends on risk tolerance. Conservative investors may target 10-15% annual volatility, while aggressive investors may target 20-30%.
  • Volatility targeting works best with diversified portfolios. For single positions or highly correlated assets, consider other position sizing methods.

Frequently Asked Questions

Volatility targeting, risk-based position sizing, and portfolio volatility management

What is volatility targeting?

Volatility targeting is a risk management approach that sets position sizes to achieve a target portfolio volatility level, helping manage risk consistently across different assets and time periods.

How is position size calculated for volatility targeting?

Position weight ≈ Target Volatility / Asset Volatility (simplified). Higher asset volatility requires smaller positions to maintain target portfolio volatility.

What is a good target volatility?

Target volatility depends on risk tolerance. Conservative investors may target 10-15% annual volatility, moderate investors 15-20%, and aggressive investors 20-30% or higher.

How does correlation affect position sizing?

Higher correlation with existing portfolio increases portfolio volatility, requiring smaller positions to maintain target volatility. Lower correlation allows larger positions.

Can I use volatility targeting for a single position?

Yes, but it's more effective with diversified portfolios. For single positions, volatility targeting helps set position size based on risk tolerance and asset volatility.

How do I estimate asset volatility?

Estimate asset volatility using historical returns (standard deviation), implied volatility (options), or volatility models. Use recent data (e.g., 30-252 days) for current volatility estimates.

Should I recalculate position sizes regularly?

Yes. Recalculate when asset volatility changes significantly, portfolio composition changes, or target volatility is adjusted. Regular rebalancing helps maintain target volatility.

What if calculated position size exceeds 100%?

If position size exceeds 100%, either reduce target volatility, use higher-volatility assets, or accept that target volatility cannot be achieved with this asset alone. Consider diversification.

How does volatility targeting compare to fixed position sizing?

Volatility targeting adjusts position sizes based on asset volatility to maintain consistent portfolio risk, while fixed sizing uses constant position sizes regardless of volatility.

Can I combine volatility targeting with other position sizing methods?

Yes. Combine volatility targeting with Kelly Criterion, risk/reward-based sizing, or other methods. Use volatility targeting as a risk management overlay while maintaining diversification and other objectives.

Embed This Calculator

Add this calculator to your website or blog using the embed code below:

<div style="max-width: 600px; margin: 0 auto;"> <iframe src="https://mycalculating.com/category/finance/volatility-target-position-size-calculator?embed=true" width="100%" height="600" style="border:1px solid #ccc; border-radius:8px;" loading="lazy" title="Volatility Target Position Size Calculator Calculator by MyCalculating.com" ></iframe> <p style="text-align:center; font-size:12px; margin-top:4px;"> <a href="https://mycalculating.com/category/finance/volatility-target-position-size-calculator" target="_blank" rel="noopener"> Use full version on <strong>MyCalculating.com</strong> </a> </p> </div>
Open in New Tab

Volatility Target Position Size Calculator

Calculate position size based on target portfolio volatility, asset volatility, and correlation for risk targeting.

How to use Volatility Target Position Size Calculator

Step-by-step guide to using the Volatility Target Position Size Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Volatility Target Position Size Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Volatility Target Position Size Calculator is designed to be user-friendly and provide instant calculations.

Is the Volatility Target Position Size Calculator free to use?

Yes, the Volatility Target Position Size Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Volatility Target Position Size Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Volatility Target Position Size Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.