Curriculum·S207 Investing Frameworks (Unleveraged)·about 30 min
Portfolio construction
By the end of this lesson you can
- →Size positions from a stated risk budget rather than from conviction
- →Explain why diversification depends on correlation and why correlation is not a fixed property
- →Compute how many genuinely independent positions a portfolio contains
- →State the one decision that dominates every other construction choice
Sophomore · enrolled learners
This lesson opens with Diversification that stopped working without being withdrawn.
- What happened
- The International Monetary Fund's January 2022 note measured the correlation between bitcoin and the S&P 500 at about 0.01 across 2017 to 2019 and about 0.36 across 2020 to 2021, with intraday volatility of major crypto assets becoming roughly four to eight times more correlated with US equity indices. S206-01 treats this as a macro measurement. The construction consequence is separate and larger: an allocation held on the grounds that it reduced portfolio risk continued to be held on those grounds after the property had gone, because a portfolio's risk is a function of correlations that nobody recomputes and that appear nowhere on a statement.
- The decision point
- Nobody rebalanced, because nothing prompted them to. A holding's weight is visible and its contribution to portfolio risk is not, so the input that changed was the one nobody was looking at. The construction was correct when it was built and was not reviewed against the assumption it rested on.
What you will be able to answer
- →What should determine position size?
- →Why is diversification not a property of a portfolio?
- →How many independent positions do you have?
- →Which construction decision dominates?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.imf.org/-/media/Files/Publications/gfs-notes/2022/English/GFSNEA2022001.ashx
- https://www.dalbar.com/PressReleases/doc/QAIB2024_PR.pdf
- https://www.coindesk.com/research/market-spotlight-the-19-billion-liquidation-that-shook-crypto
Confidence medium·Volatility medium·Reviewed 2026-08-06·Owner unassigned
Contested
S206-01 uses the correlation measurement to teach macro claims and windows. This lesson uses it for what it does to construction. Keep the split; if a revision starts arguing about drivers here, that belongs in S206-01.
This course covers unleveraged frameworks only. Leverage changes every calculation here and is treated in the Senior level. Do not let a revision introduce leveraged sizing into this course.
Nothing in this lesson is a recommendation about how much of any asset to hold. The output is a method for deciding, and P10 forbids implying that any allocation produces a return.