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I am trying to calculate the Net Exposure of Portfolio including bonds, stocks, Gold, etc.

Firstly, I calculate the net exposure of every product/symbol(Long position minus Short position).

Then, I just sum up all the absolute value of every net exposure?

Should I consider the correlation matrix?

Thank you so much.

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  • $\begingroup$ Hello Carl, are you talking exposure? expected exposure? or unexpected exposure? This will give half the answer :) $\endgroup$
    – byouness
    Nov 12, 2018 at 16:38
  • $\begingroup$ No, this kind of simple calculation usually does not consider the correlation matrix. $\endgroup$
    – Alex C
    Nov 12, 2018 at 21:30

2 Answers 2

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A hedge fund will generally have three kinds of positions: Cash, Long Positions and Short Positions.

You find the value of long positions (VLP) by adding up the dollar values of all long positions. You find the value of short positions (VLS, which will be a negative number) by adding up the dollar values of all short positions.

Then the Total Equity is defined as TE = Cash + VLP - |VLS|

The dollar net exposure is DNE = VLP - |VLS|

The dollar gross exposure DGE = VLP + |VLS|

The percent net exposure is %NE = DNE/TE

The percent gross exposure is %GE = DGE/TE

The cash exposure is %CASH = Cash/TE

(A fund with zero gross exposure will be 100% in cash).

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the gross dollar exposure is the sum of all absolute values of your dollar exposures.

the net dollar exposure is the sum of all the signed values of your dollar exposures.

a dollar neutral portfolio has 0 net dollar exposure but has a non-zero gross dollar exposure

a zero gross dollar exposure implies your portfolio is actually empty

hope this clarifies

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