Decompose model volatility into weighted contributions

Read the marginal quantity

Marginal volatility contribution for asset i is covariance of that asset with the portfolio divided by portfolio standard deviation. It describes the derivative with respect to that asset’s weight in the stated homogeneous risk calculation. It does not already include the asset weight.

Apply the capital weight

Weighted contribution multiplies the marginal quantity by the asset’s weight. In the original pair, asset A contributes approximately 6.908092 percentage points of total model volatility; asset B contributes the balance.

Check the sum and the shares

Handle zero and signed values

The volatility-based ratios are undefined when total model volatility is zero. A negative weighted contribution can occur under hedging covariance even when capital weights are positive. Do not take absolute values simply to make a decomposition look like a pie chart.