Risk Management Practice Worksheet.
A paper-only companion to our free Risk Management Lab course. Work through exposure, drawdowns, liquidity and an evidence-based review without committing capital.
What do you actually have at risk?
Use fictional values. A position’s portfolio weight is its market value divided by total portfolio value. Weight is exposure, not a guaranteed maximum loss.
Hypothetical example
A fictional $10,000 portfolio has Position A worth $1,500, Position B worth $2,000 and Position C worth $500. The remaining $6,000 is cash. Portfolio weights are 15%, 20%, 5% and 60%, respectively.
| Paper position | Value | Weight | Potential shared risk |
|---|---|---|---|
| Position A | $1,500 | 15% | Broad market |
| Position B | $2,000 | 20% | Market / rates |
| Position C | $500 | 5% | Issuer concentration |
| Cash | $6,000 | 60% | Purchasing power / institution |
Paper exercise: Replace these amounts with fictional values of your own. Sum the weights and check that they equal 100%. Identify which risks could affect more than one position.
Losses and recoveries are not symmetrical.
If a paper portfolio loses fraction L of its starting value, the subsequent gain necessary to recover is L ÷ (1 − L), for 0 ≤ L < 1. This is arithmetic, not a forecast.
| Hypothetical loss | Value remaining from $100 | Gain needed to recover |
|---|---|---|
| 10% | $90 | 11.1% |
| 20% | $80 | 25% |
| 30% | $70 | 42.9% |
| 40% | $60 | 66.7% |
| 50% | $50 | 100% |
Paper exercise: Calculate the recovery required after a hypothetical 25% loss. Answer: 25 ÷ 75 ≈ 33.3%. Explain why a prior maximum drawdown cannot guarantee future losses will be smaller.
Look beyond the expected case.
For a hypothetical investment, write three different scenarios and identify the assumptions that each scenario breaks.
Ordinary conditions
Which assumptions about volatility, liquidity, trading hours, and correlations are being made?
Sharp market decline
What happens if several positions fall together, spreads widen and the intended exit cannot be reached?
Gaps and disrupted markets
What if trading is halted, a broker raises margin requirements, or a position becomes temporarily illiquid?
Decision prompts
- What primary source supports the assumptions?
- What loss could the instrument create beyond the intended exit?
- Does leverage or borrowing change the exposure?
- Which other hypothetical holdings share similar risks?
- What evidence would cause a reassessment?
Write it down before reviewing the outcome.
Copy this template into a notebook or document. The goal is to evaluate the quality of the research process—not to prove an investment strategy.
Paper-only journal template
Study date: __________________________
Fictional instrument or scenario: __________________________
Objective and time horizon: __________________________
Primary documents reviewed: __________________________
Key evidence: __________________________
Unverified assumptions: __________________________
Downside scenarios: __________________________
Costs and liquidity limitations: __________________________
Reasons to change the assessment: __________________________
Follow-up review date: __________________________
Reflection: Which assumptions were weakest? Which risks were hardest to quantify? What original source would clarify the uncertainty?
Put the worksheet into context.
Use this worksheet alongside the five lessons of Risk Management Lab, then revisit Market Foundations for the underlying market vocabulary and execution concepts.
Educational use only. All examples and numbers are hypothetical, not live investment positions, forecasts, personal recommendations, or guarantees. Actual losses can be severe and may exceed initial capital for some leveraged products. See full disclosures.