Rhizomatic Risk Analysis

 

Bantam CEO Jack Duval has created a new way to analyze, measure, and rate investment risk for individual investments and entire portfolios.

What is Rhizomatic Risk?

 

Rhizomatic Risk is a method of evaluating the risk of investments and portfolios by viewing them as a bundle of exposures to various elements that are typically unseen.  A “rhizome” is an underground root system that connects multiple grasses, plants, or trees.  If you have ever weeded a garden and pulled up a rhizomatic plant, the one you pulled up was connected to all the others.

 

This metaphor can be used for investments.  Under Modern Portfolio Theory, investments in a portfolio are treated as independent.  However, these investments could be connected in ways that are not apparent or captured in correlation analyses and other mean-variance methods.

 

For instance, the stock of a company with headquarters in a midwestern city and a municipal bond issued by that city will almost certainly have very low correlation.  However, if that city were to get hit by a large tornado, both securities would likely decline significantly at the same time.  (I.E. become highly correlated).  This would be due to a rhizomatic risk they shared between them, but was hidden.  Namely, that of a common environmental risk.

 

Bantam provides the following Rhizomatic Risk services:

 

•  Identification of Rhizomatic Risk exposures for individual securities and entire portfolios;

•  Measurement and rating of Rhizomatic Risk exposures, and;

•  Diversification of Rhizomatic Risks.