spec concentration formula for stock, sector, country, and currency

docs/sesha-notes/03-concentration-formula-spec.md

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+# Concentration Risk — Formula Spec
+
+**Author:** sesha siva sankar (member 1)
+**Date:** Thu, Sep 17
+**Task:** Spec concentration formula (single stock, sector, country, currency)
+
+---
+
+## 1. Why this is its own thing
+
+Looking back at yesterday's rule catalog, X-Ray already has a "currency cluster risk"
+check, but nothing for **single stock**, **sector**, or **country** concentration. That's
+a real gap — "I own 40% Apple" is one of the most obvious portfolio red flags there is,
+and it's not covered today. So this isn't tweaking an existing rule, it's specifying 4 new
+ones (stock, sector, country, currency) that all share the same underlying math.
+
+I'm reusing currency's existing rule as the 4th one here (not rebuilding it) — just
+documenting it alongside the 3 new ones since they're all the same formula, so the spec
+reads as one consistent family.
+
+## 2. The formula (same shape for all 4 types)
+
+All four are "how much of my portfolio sits in the single biggest bucket of X," where X is
+stock / sector / country / currency. Concretely:
+
+```
+1. Take all open holdings, convert each to the base currency.
+2. Group holdings by the attribute in question:
+     - Stock      -> group by symbol (e.g. AAPL, MSFT)
+     - Sector      -> group by assetProfile.sectors[].name (see note in section 4)
+     - Country     -> group by assetProfile.countries[].code
+     - Currency    -> group by assetProfile.currency (already exists, see rule below)
+3. Sum each group's value.
+4. concentrationRatio = ( value of the LARGEST group ) / ( total portfolio value )
+5. Fail if concentrationRatio > thresholdMax
+```
+
+This is exactly the pattern the existing `Rule` base class already supports —
+`groupCurrentHoldingsByAttribute()` (from `apps/api/src/models/rule.ts`, which I found
+during Tuesday's read-through) already does steps 1-3 for a single flat attribute like
+currency. Stock and country need a small variant since they group by a _nested/array_
+field, not a flat one (see section 4).
+
+## 3. The 4 rules, thresholds, and defaults
+
+| Rule                                          | Groups by         | Default `thresholdMax` | Rationale for default                                                                                |
+| --------------------------------------------- | ----------------- | ---------------------- | ---------------------------------------------------------------------------------------------------- |
+| **Single Stock Concentration**                | individual symbol | 10%                    | Common rule of thumb — no single stock should be more than ~10% of a diversified portfolio           |
+| **Sector Concentration**                      | sector name       | 30%                    | Sectors are naturally broader than single stocks, so a higher ceiling is reasonable                  |
+| **Country Concentration**                     | country code      | 50%                    | Matches the existing currency rule's default, and home-country bias is normal/expected up to a point |
+| **Currency Concentration** _(already exists)_ | currency code     | 50%                    | This is `CurrencyClusterRiskCurrentInvestment` — no change, just including for completeness          |
+
+All four are configurable per-user (same `thresholdMax` override pattern every other rule
+already uses via `user.settings.xRayRules`), so a user who's fine with 20% in one stock
+can raise the ceiling instead of being stuck with our default.
+
+## 4. Data needed — and the one gap I found
+
+Stock and Currency concentration need nothing new — `symbol` and `assetProfile.currency`
+are both already flat fields on every holding, exactly like the existing currency rule
+uses.
+
+Sector and Country are trickier: in the schema, `assetProfile.sectors` and
+`assetProfile.countries` are **arrays of `{ name/code, weight }`**, because a single
+holding (e.g. a diversified ETF) can span multiple sectors/countries at once (e.g. 60% US
+Tech ETF / 40% something else within one symbol). That means:
+
+- We can't just bucket "this holding = one sector" the way currency does.
+- Instead, each holding's value has to be **split proportionally** across its
+  sectors/countries using their `weight` before grouping. E.g. a $10,000 ETF holding that's
+  70% Tech / 30% Healthcare contributes $7,000 to the Tech bucket and $3,000 to Healthcare.
+- This means Sector and Country concentration need their own aggregation helper, not a
+  straight reuse of `groupCurrentHoldingsByAttribute()` — flagging this as the one real
+  implementation gotcha for whoever builds this next (probably me, later this sprint).
+
+## 5. Where this plugs into the Health Score model (yesterday's doc)
+
+These 4 rules become their own category, **"Concentration Risk,"** in the weighted model
+from [02-health-score-data-model.md](02-health-score-data-model.md). Two ways to fold it
+in — flagging both since this affects total weighting math and I want the team's input
+before locking it in:
+
+- **Option A**: Add "Concentration Risk" as a 9th category, and give it a real chunk of
+  the 100 points (e.g. 15-20, similar to Currency/Asset Class today) — this means every
+  other category's weight shrinks a bit to keep the total at 100.
+- **Option B**: Since Currency Concentration already lives under "Currency Cluster Risk,"
+  fold Stock/Sector/Country into that same category and rename it "Concentration Risk,"
+  reusing its existing 15-point budget across all 4 sub-rules (roughly 3.75 each).
+
+I'd lean toward **Option A** — stock/sector/country concentration is arguably a bigger,
+more distinct risk signal than currency alone, and burying it inside the currency category
+would under-weight it. But this is a product call as much as a data one, worth a quick
+gut-check with the team rather than me just deciding solo.
+
+## 6. Rule output shape (matches the existing pattern exactly)
+
+No new interface needed — same `EvaluationResult` (`{ evaluation, value }`) every other
+rule already returns:
+
+```jsonc
+{
+  "key": "SingleStockConcentration",
+  "name": "Single Stock Concentration",
+  "isActive": true,
+  "value": false,
+  "evaluation": "AAPL makes up 14.2% of your portfolio, above the 10% threshold.",
+  "configuration": { "threshold": { "max": { "unit": "%", "value": 0.1 } } }
+}
+```
+
+## 7. Edge cases
+
+- **Zero holdings**: same as every other X-Ray rule today — don't run this category at all
+  (matches the existing `hasOpenHoldings` gate other cluster-risk rules already use).
+- **Holding with no sector/country data** (data provider gap): exclude it from the
+  Sector/Country grouping rather than crashing or silently miscounting — should show up
+  as "uncategorized" bucket so the user isn't misled by an artificially lower score.
+- **Multiple holdings of the same stock across different accounts**: still one bucket —
+  concentration is about total exposure to the symbol, account grouping is a separate
+  concern (that's what Account Cluster Risk already covers).
+
+## 8. What's next
+
+Friday's task is the volatility estimate + cash allocation scoring logic — a different
+kind of check (estimate-based, not just a concentration ratio), so that'll need its own
+formula spec rather than reusing this one.