Curriculum·S207 Investing Frameworks (Unleveraged)·about 31 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This lesson opens with Diversification that stopped working without being withdrawn.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
- International Monetary Fund staff work published in January 2022 put the correlation between bitcoin and S&P 500 returns at 0.01 across 2017 to 2019 and 0.36 across 2020 to 2021 (the IMF blog, which read the rise as limiting perceived risk diversification benefits), and found the intraday price volatility of bitcoin and ether about four to eight times more correlated with the volatility of the main US equity indices than in 2017 to 2019 (the Global Financial Stability Note). S206-01 treats this as a macro measurement. The construction consequence is this lesson's reading rather than something the IMF measured: an allocation held on the grounds that it reduced portfolio risk would go on being held on those grounds after the property had weakened, because a portfolio's risk is a function of correlations that nobody recomputes and that appear nowhere on a statement.
- The decision point
- The IMF measured markets, not anybody's portfolio, so this is the lesson's argument rather than a record of what holders did: nothing on a statement would have prompted a review. 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. A construction that was correct when it was built goes unreviewed against the assumption it rested on unless somebody wrote that assumption down.
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.pdf
- https://www.imf.org/en/blogs/articles/2022/01/11/crypto-prices-move-more-in-sync-with-stocks-posing-new-risks
- https://www.dalbar.com/PressReleases/doc/2025QAIBPressRelease.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. The 0.01 and 0.36 figures are from the IMF blog of 11 January 2022 and the four-to-eight-fold figure, which is about intraday volatility of bitcoin and ether rather than returns, from the Global Financial Stability Note No. 2022/01 (Tara Iyer) it summarizes; the Note carries the disclaimer that its views do not necessarily represent the IMF's. The IMF measured markets, not holders: that allocations went unreviewed is this lesson's reading of the construction consequence, not a finding, and the autopsy says so.
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.