The Risk/Reward Heatmap quickly shows you the relative risk and reward that investment choices are adding to the portfolio, including the accounts you’re viewing, and is also a great way to quickly glance at the underlying data Riskalyze is using to produce the overall risk analytics.
By selecting the Risk/Reward Heatmap view, you can see a visual representation of the potential risk (red bar), potential return (green bar) and the amount of risk that is diversified out by inverse correlations (gold bar), given the data model selected.
Interpreting the Risk/Reward Heatmap
The Risk/Reward Heatmap view incorporates the performance, volatility, and correlation of each individual security within the context of the total portfolio. The Risk/Reward Heatmap generates three outputs for portfolios with less than 100 holdings (see the Risk/Reward Heatmap: Deeper Dive article for some workflows related to portfolios with greater than 100 holdings):
Green bar (REWARD): Potential positive return for this investment, in proportion to its allocation within this portfolio.
Red bar (RISK): Potential negative return for this investment, in proportion to its allocation within this portfolio.
Gold bar (DIVERSIFIED RISK): The amount of risk that has been diversified away for this investment, calculated from anti-correlations with the other holdings in the portfolio.
Other Key Points
- The total risk (diversified and undiversified risk) of the investment is represented by Red bar + Gold bar.
- The greater the length of gold bars, the lower the overall Risk Number will be.
- If you have selected a custom Market Assumption, for example, +1% increase in interest rates, the heatmap view will absolutely reflect the updated risk and reward scenarios for each of the affected securities.
- To drill into the investment details underlying the Risk/Reward Heatmap, simply click on the investment:
PRO TIP: For an interactive walk-through of the power of the Risk / Reward Heatmap, check out our Riskalyze Academy Lesson.