What is the difference between Marginal Contribution to Total Risk (Asset Allocation topic) and Contribution to Portfolio Variance (Equities topic)?
I know/see the formula differences, but can someone explain the narrative of what is different?
MCTR is Beta * StDev
CV is WiWjCovi,j
Marginal Contribution to Total Risk takes into account the sensitivity of each asset class to the volatility of the portfolio without considering the covariance between each asset class.
Hence adding cash will not contribute to total portfolio risk, MCTR and ACTR.
Contribution to Portfolio Variance takes into account the covariances between each asset class.
Adding cash can either increase/decrease total portfolio variance if covariance of returns is high/low with other assets.