Concept · Stock-level risk (bottom-up)
Residual
The part of a stock's return left after the factor model is removed. RiskModels emphasizes the residual as where selection skill lives.
In depth
After the orthogonal cascade strips market, sector, and subsector, what's left is the residual — the pure idiosyncratic bet, where selection skill lives. RiskModels treats the residual as the thing worth measuring, not a leftover.
Formula
ε_i = r_i − Σ_k β_ik · f_k
Compute it with the API
GET /api/metrics/{ticker}
# pip install riskmodels-py
client.get_metrics("NVDA", as_dataframe=True)["l3_residual_er"]In the methodology
Explained risk: variance decomposition →Referenced by (6)
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