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Next filing · Form 10-Q · Q2 2026 · 54 daysFactor Research · Part 2 published: risk structure in 13F filings across five allocator stylesAPI Update · AOM portfolio chains — single snapshot call for multi-step analyze flowsAPI Update · POST /api/snapshot — canonical JSON portfolio snapshotPart 3 · The One Manager Skill That PersistsPart 1 · One Position, Four BetsNext filing · Form 10-Q · Q2 2026 · 54 daysFactor Research · Part 2 published: risk structure in 13F filings across five allocator stylesAPI Update · AOM portfolio chains — single snapshot call for multi-step analyze flowsAPI Update · POST /api/snapshot — canonical JSON portfolio snapshotPart 3 · The One Manager Skill That PersistsPart 1 · One Position, Four Bets
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    • Every Position Has a Level Too
    • RiskModels Quarterly Funds Report — Q1 2026
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Concept · The RiskModels engine (ERM3)

Explained risk (ER)

The variance share attributable to each level. ER(L1) + ER(L2) + ER(L3) + residual = 1.0 by construction, verified at runtime to ±0.1%.

In depth

The variance share each level explains. Because every level is fit by an honest orthogonal regression, the residual is uncorrelated with every factor — so the shares sum to exactly 1.0, checked at runtime to ±0.1%.

Formula

ER(L1) + ER(L2) + ER(L3) + RR = 1.0

Compute it with the API

GET /api/l3-decomposition

# pip install riskmodels-py
client.get_metrics("NVDA", as_dataframe=True)[["l3_market_er","l3_sector_er","l3_subsector_er","l3_residual_er"]]

Full API docs ↗

In the methodology

Explained risk: variance decomposition →

Referenced by (0)

No working paper references this concept yet.

Related concepts

ERM3Hierarchical cascade (L1/L2/L3)Link beta (λ)Replication equationRobust beta (Huber-M)Vasicek shrinkageL-star ruleGeometric attribution bridgeResidual mean-reversion signal
← Link beta (λ)The RiskModels engine (ERM3) · 4 / 10Replication equation →
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