How SignalFin scores portfolio risk

Your risk score reflects two specific dimensions of how a portfolio is constructed: position concentration and sector concentration.

We chose these because they are the two most common ways retail portfolios become fragile, and because they can be calculated transparently from holdings alone — with no black-box assumptions about future returns, volatility, or correlations.

This page explains exactly what the score measures, how it is calculated, and — just as importantly — what it does not measure.

What the score measures

Two independent dimensions, each scored on a three-tier scale: healthy, warning, flag.

The two are reported separately. There is no single composite “risk number” — combining them into one score would hide the actual issue. A portfolio can be healthy on one dimension and flagged on the other, and the right action depends on which.

What goes in

• Equity holdings from your connected brokerage, refreshed every 24 hours.
• Cash positions are tracked but excluded from the concentration calculation. A cash sleeve does not contribute to single-name or single-sector risk.
• Options and crypto are surfaced separately and not included in equity concentration. Options exposure requires a different framework.
• Sector classification uses the GICS sector standard — the same taxonomy used by S&P and MSCI for index construction.

Position concentration

The largest single equity position as a percentage of your total equity value.

Formula

position_concentration = max(position_value) / sum(all_equity_positions)

Thresholds

Why these numbers

These thresholds reflect common rules of thumb used by institutional risk desks for diversified equity portfolios. The 15% line is roughly where a single-position drawdown begins to dominate quarterly P&L. The 25% line is roughly where the portfolio's risk profile is better described as “concentrated bet on one name plus diversification” than as “diversified portfolio.”

These are not laws of physics. They are guidelines that have proven useful across decades of portfolio construction.

Sector concentration

The largest single GICS sector as a percentage of your total equity value.

Formula

sector_concentration = max(sum(positions_in_sector)) / sum(all_equity_positions)

Thresholds

Why these numbers

Sector thresholds are higher than position thresholds because sectors are inherently broader — a 30% allocation to Information Technology spans dozens of companies with different business models. The 30% line is where sector beta begins to dominate stock-specific returns. The 40% line is where the portfolio's behavior is better described by sector rotation than by individual company performance.

GICS sectors are used because they are the standard reference. If you hold ETFs, their underlying holdings are decomposed into sectors before this calculation runs — a portfolio of S&P 500 ETFs will not be flagged as concentrated.

A worked example

A portfolio with five positions:

• Position concentration: NVDA at 28% → Flag
• Sector concentration: Information Technology at 64% → Flag

Both signals fire. The portfolio is concentrated in one stock and one sector — and the two are related, since NVDA is the largest position within the dominant sector. This is a common pattern in retail portfolios that grew during a sector bull run.

What this score does not measure

Be specific about what the score is silent on:

• Volatility or beta. A portfolio can have a healthy concentration profile and still be high-volatility. Beta and volatility are surfaced separately on the Holdings Detail view.
• Correlation. Two positions in different sectors can still move together. The score does not analyze pairwise correlations.
• Tail risk or drawdown scenarios. The score does not model what happens in a 2008 or 2020 event.
• Liquidity risk. Small-cap and thinly traded positions are weighted by current market value, not by exit cost.
• Quality of the underlying companies. The score is structural — it does not evaluate whether the companies you hold are good investments.
• Tax efficiency or wash-sale exposure. Portfolio construction risk is independent of tax outcomes.

When to be cautious of this score

The score flags structural concentration without knowing your intent. There are situations where a flag is informational rather than a recommendation to act:

• Concentrated positions you control. If you work at the company you hold, or you hold founder stock, the position-concentration flag tells you something you already know — your career and your portfolio are correlated. The flag is still useful as a reminder of the exposure.
• Sector concentration by design. If you are deliberately overweight one sector based on a thesis, the flag is a confirmation that the bet is sized as intended, not an instruction to rebalance.
• Recent market movement. A position that has run hard recently may be temporarily above threshold. The score reflects the portfolio as of the most recent refresh — it does not know whether that is a transient spike or a structural shift.

The score is a structural diagnostic. The decision to act on it belongs to you.

Refresh and accuracy

• The score is recalculated whenever your holdings are refreshed (every 24 hours, or on demand from the dashboard).
• Cached scores are stored for performance and are invalidated when holdings change.
• Sector classifications are updated quarterly to reflect any GICS reclassifications.
• If a position's sector cannot be determined (e.g., a private placement or unusual security), it is grouped under “Other” and excluded from sector concentration.