bet-sizing

What problem does it solve?

This Skill helps investors and traders determine the optimal amount of capital to allocate to individual positions within a portfolio, preventing over-concentration and maximizing risk-adjusted returns.

Core Features & Use Cases

• Kelly Criterion: Calculate theoretically optimal bet sizes for both discrete and continuous investments.
• Fractional Kelly: Apply conservative fractions (half, third, quarter Kelly) to mitigate risk from estimation errors.
• Risk Budgeting: Allocate risk across positions based on VaR or tracking error limits.
• Volatility Scaling: Adjust position sizes inversely with volatility to maintain consistent risk exposure.
• Use Case: A portfolio manager wants to size a new stock position. They estimate an 8% expected excess return and 20% volatility. This skill can calculate the full Kelly (200% allocation, highly leveraged) and suggest a more practical half Kelly (100% allocation) or quarter Kelly (50% allocation) to balance growth and risk.

Quick Start

Calculate the half Kelly bet size for an investment with 8% expected excess return and 20% volatility.