# Sector exposure

Sector exposure is the share of a portfolio’s value allocated to companies in a particular industry sector, usually expressed as a percentage.

## What it means

A portfolio can hold several stocks yet still depend heavily on one part of the economy. Sector exposure shows how much of the portfolio is allocated to each sector, such as technology, health care or financials. It is normally measured by **market value**, not by the number of companies or shares held.

Sector labels depend on the classification system used. A company with activities across several industries may still be assigned one primary sector. For a clear comparison, use the same sector classification for every holding and state whether the calculation includes cash and other assets.

## How it is calculated

`Sector exposure (%) = (market value of holdings assigned to the sector / total portfolio market value) × 100`

- **Market value of holdings assigned to the sector** is the sum of the current market values of positions classified in that sector, measured in the portfolio’s currency.
- **Total portfolio market value** is the value of all assets included in the calculation, measured in the same currency and at the same point in time.
- **100** converts the fraction into a percentage.

For a stock position, market value is generally shares held multiplied by the current price per share. If holdings are priced in different currencies, convert their values to one currency before adding them. When calculating exposure for a *proposed basket* rather than an existing portfolio, use the proposed transaction values and label the result as basket exposure. A basket calculation does not show the exposure of the investor’s entire account.

## Worked example

Suppose a hypothetical stock portfolio contains four positions, valued in US dollars:

| Holding | Sector | Market value |
| --- | --- | ---: |
| Stock A | Technology | US$4,000 |
| Stock B | Technology | US$2,000 |
| Stock C | Health care | US$3,000 |
| Stock D | Financials | US$1,000 |

1. Add all position values: US$4,000 + US$2,000 + US$3,000 + US$1,000 = **US$10,000**.
2. Add the technology positions: US$4,000 + US$2,000 = **US$6,000**.
3. Divide by the portfolio total: US$6,000 / US$10,000 = **0.60**, or **60% technology exposure**.

The same calculation gives 30% health care and 10% financials. The three sector weights total 100% because this example contains only stocks, assigns each stock to one sector and includes every holding in the denominator.

## Why it matters before you trade

Stocks in the same sector can respond to similar business conditions, regulation or economic events. Adding a new name in an already heavily represented sector can increase concentration even if it increases the number of holdings. Sector exposure therefore adds context to a pre-trade analysis: it shows where the proposed capital is allocated, not whether a particular stock will rise or fall.

The denominator matters. A basket with 60% technology exposure might be a small part of a broader portfolio with a different mix. Before interpreting the figure, check whether it describes the intended trades, current holdings or the combined portfolio after hypothetical trades. Sector weights also change as prices and position sizes change.

## How PreTrAIde uses it

PreTrAIde provides a **sector breakdown** as part of its quantitative portfolio breakdowns for a stock basket submitted for Pre-trade analysis. The user builds the basket with a side, quantity and execution conditions for each stock. PreTrAIde returns a GO, NO-GO or MODIFY verdict for the basket and each line, alongside a risk assessment, a model-estimated success probability, a suggested execution strategy and plain-language reasoning. Its verdicts support a decision; they are not investment recommendations. Users place any trades themselves through their own broker.

## Common mistakes

- **Counting names instead of value:** Two technology stocks do not necessarily represent twice the exposure of one financial stock; position values determine the weights.
- **Mixing scopes:** A proposed basket’s sector breakdown is not automatically the sector breakdown of all existing holdings.
- **Changing denominators silently:** Including cash lowers stock-sector percentages compared with a stocks-only calculation.
- **Treating labels as complete descriptions:** A company’s assigned sector may not capture every source of its revenue or risk.
- **Assuming different sectors eliminate shared risk:** Companies in separate sectors can still be affected by the same broad market event.

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Source: https://pretraide.com/glossary/sector-exposure