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Allocation Strategies

Develop effective allocation strategies to optimize your PMF's risk-return profile.

Core Allocation Principles​

Risk-Based Allocation​

  • Allocate based on risk assessment of each position
  • Higher conviction trades receive larger allocations
  • Maintain overall portfolio risk within acceptable limits

Diversification Strategies​

  • Spread risk across multiple markets and categories
  • Avoid over-concentration in correlated positions
  • Balance short-term and long-term opportunities

Allocation Models​

Equal Weight​

  • Allocate equal amounts to each position
  • Simple to implement and understand
  • May not optimize for risk-adjusted returns

Risk Parity​

  • Allocate based on risk contribution of each position
  • Aims to equalize risk across all positions
  • More complex but potentially more efficient

Kelly Criterion​

  • Mathematical approach to optimal position sizing
  • Based on probability of success and potential returns
  • Requires accurate probability estimates

Implementation Strategies​

Initial Allocation​

  • Start with core positions in high-conviction markets
  • Gradually add positions as opportunities arise
  • Maintain cash reserves for new opportunities

Rebalancing​

  • Regular review and adjustment of allocations
  • Respond to changing market conditions
  • Take profits and cut losses systematically

Next Steps​