nirholas Portfolio Risk Assessment
When to use this skill
Use when the user asks about:
- Understanding their portfolio's overall risk level
- Identifying hidden risks or correlations
- Stress-testing their portfolio against market scenarios
- Reducing portfolio risk without sacrificing too much upside
- Evaluating whether their risk exposure matches their tolerance
Risk Assessment Framework
1. Concentration Risk
Analyze portfolio distribution:
- Single-asset concentration: Any position > 25% of portfolio is high concentration risk
- Sector concentration: Total exposure to a single sector (e.g., all DeFi tokens) shouldn't exceed 40%
- Chain concentration: Everything on one chain means single-point-of-failure risk (bridge hack, chain halt)
- Herfindahl Index: Calculate HHI = sum of squared weights. Below 0.15 = diversified, above 0.25 = concentrated
| Risk Level | Characteristic |
|---|---|
| Low | No single asset > 15%, no sector > 30%, 3+ chains |
| Medium | One asset 15-25%, sector up to 40%, 2+ chains |
| High | One asset > 25%, sector > 40%, single chain |
| Critical | One asset > 50%, or all in one protocol |
2. Correlation Analysis
Assess how positions move together:
- High correlation cluster: BTC, ETH, and most alts are highly correlated in drawdowns (correlation 0.7-0.95 during crashes)
- Diversification reality: Holding 10 different altcoins does NOT provide meaningful diversification if they all drop 60% together
- True diversification assets: Stablecoins, potentially BTC (lower beta during moderate corrections)
- Negative correlation: Stablecoins and short positions provide true hedge, but at a carry cost
- Correlation increases in crisis: Diversification benefits shrink exactly when you need them most
3. Volatility Risk Profile
Quantify the portfolio's volatility exposure:
- Weighted average volatility: Sum of (position weight * asset 30d annualized volatility)
- Maximum drawdown exposure: Estimate worst-case based on historical max drawdowns of each asset
- $Value at Risk: At 95% confidence over 24h, how much could the portfolio lose?
- Beta to BTC: How much does the portfolio move per 1% BTC move? Beta > 1.5 is aggressive
4. Leverage and Liquidation Risk
If the portfolio includes leveraged positions:
- Total leverage ratio: Sum of all positions / actual equity deployed
- Liquidation prices: For each leveraged position, what price triggers liquidation?
- Aggregate liquidation buffer: Minimum percentage drop across all positions before any liquidation fires
- Cross-margin risk: If positions share collateral, one liquidation can cascade
- Funding rate exposure: Net funding costs or earnings across perpetual positions
5. Protocol and Smart Contract Risk
Assess DeFi-specific risks:
- Protocol diversification: Don't put > 20% in any single protocol
- Audit status: List protocols used and their audit history
- Composability risk: Complex strategies stacking multiple protocols multiply risk (a bug in any layer fails the whole stack)
- Oracle dependency: Which oracle do your DeFi positions rely on? Single oracle failure cascades
- Bridge exposure: Funds currently on bridges or bridged chains
6. Stress Test Scenarios
Model portfolio impact under specific scenarios:
| Scenario | BTC Impact | ETH Impact | Alt Impact | Portfolio |
|---|---|---|---|---|
| 2022-style bear (gradual) | -65% | -70% | -85% | ? |
| Flash crash (24h) | -30% | -35% | -50% | ? |
| Stablecoin depeg | 0% | -10% | -15% | ? |
| Smart contract exploit | 0% | 0% | -100% (affected) | ? |
| Regulatory crackdown | -20% | -25% | -40% | ? |
Calculate the dollar impact for each scenario using actual portfolio weights.
7. Risk Score Card
| Risk Category | Score (1-10) | Weight | Weighted Score |
|---|---|---|---|
| Concentration | 25% | ||
| Correlation | 20% | ||
| Volatility | 20% | ||
| Leverage | 15% | ||
| Protocol/Smart contract | 10% | ||
| Liquidity | 10% | ||
| Overall Risk Score | X / 10 |
8. Output Format
- Overall risk level: Conservative / Moderate / Aggressive / Reckless
- Risk score: X / 10 (higher = more risk)
- Top 3 risks: Most critical vulnerabilities in the portfolio
- Worst-case scenario: Dollar loss in a severe downturn
- Risk-adjusted improvements: 3 specific changes to reduce risk while maintaining exposure
- Diversification grade: A through F
- Leverage assessment: None / Modest / Elevated / Dangerous
- Action items: Prioritized risk reduction steps