--- title: "Allocation and allocation method" description: "Allocation is how capital is divided among what is held; the allocation method is the rule that sets each share, and Fincanva applies it at two levels." canonical_url: "https://fincanva.com/glossary/allocation-and-allocation-method" last_updated: "2026-10-06" md_url: "https://fincanva.com/glossary/allocation-and-allocation-method.md" --- # Allocation and allocation method Allocation is how a strategy divides its capital among the things it holds, and the allocation method is the rule that sets each share: it turns a list of candidates into **weights**, one percentage per item, which the [backtest](/glossary/backtest) buys. Fincanva applies it at two levels: a [Combined](/glossary/combined) across its strategies, and each [strategy](/glossary/strategy) across its instruments. **Also seen as:** weighting, position sizing, capital split ## How does Fincanva handle it? A strategy's Allocation card names the method in use, with its goal and a line describing it, and beneath it the method the strategy uses in Risk-Off. - **Equal weights** is the starting method at both levels, so a new strategy or Combined splits capital evenly until you change it. How to pick another is [Choose an allocation method](/docs/strategies/choose-an-allocation-method). - The In-sample calculation window defaults to **12 months**, and Leverage to **1.00** — no leverage. - Each level holds an allocation profile per risk regime: **Risk-On**, used while no risk condition is firing, and **Risk-Off**, used while one is, each with its own method. A strategy with no active [risk condition](/glossary/risk-condition) has only the one profile, and the Allocation card's header says **Risk-On only**; with a risk condition active it says **Risk-Off set up**. - With a single [instrument](/glossary/instrument) there is nothing to divide: "With one instrument and no Risk-Off split, 100% of capital goes to that instrument." ## Why does allocation happen at two levels? Because a Combined and a strategy allocate across different things. The [Combined level](/glossary/combined-level) decides how much of the total capital each [member strategy](/glossary/strategy-in-a-combined) receives; the strategy level then splits that slice across its instruments, which come from its [universe](/glossary/universe) — a hand-picked basket, or what a [screener](/glossary/screener) returns from its [seed universe](/glossary/seed-universe). Fincanva applies both layers in order and never flattens them into one list of instrument weights. A standalone strategy uses only the strategy level. ### What does it look like in practice? A strategy holds A, B, C and D. Under **Equal weights** each gets 25%. Switch it to **Fixed weights** and enter 40, 30, 20, 10: now A gets four times what D gets — same instruments, dates and rebalance cadence, a different split and different results. Put that strategy in a Combined with two others, on Equal weights: each strategy gets one third of the capital, and inside its third ours still splits 40 / 30 / 20 / 10. A ends up with 40% of one third — about 13.3% of the Combined's capital. That is the two levels, applied in order. ## Which allocation methods can I choose? These work at both levels — inside a strategy and when a Combined splits capital across its member strategies: [Equal weights](/glossary/equal-weights), [Fixed weights](/glossary/fixed-weights), [Inverse volatility](/glossary/inverse-volatility), [Ranking-based](/glossary/ranking-based), [Risk parity](/glossary/risk-parity), [MPT (Markowitz)](/glossary/mpt-markowitz), [Black-Litterman](/glossary/black-litterman), [Max diversification](/glossary/max-diversification), [Min MAD](/glossary/min-mad), [Min CVaR and Scenario CVaR](/glossary/min-cvar), [CDaR · Conditional drawdown at risk](/glossary/conditional-drawdown-at-risk), [EVaR · Entropic value at risk](/glossary/entropic-value-at-risk), [Robust worst case](/glossary/robust-worst-case) and [Stochastic programming](/glossary/stochastic-programming). These work only inside a strategy, across its instruments: [Market cap](/glossary/market-cap), [Min correlation](/glossary/min-correlation), [Beta neutral](/glossary/beta-neutral), [Mimicking](/glossary/mimicking), [Floating](/glossary/floating), [HRP · Hierarchical risk parity](/glossary/hierarchical-risk-parity), [HERC · Hierarchical equal risk contribution](/glossary/hierarchical-equal-risk-contribution) and [NCO · Nested clustered optimization](/glossary/nested-clustered-optimization). Each method's page states the plan that includes it, compared across plans in [what each plan includes](/docs/account-security/what-each-plan-includes). Which methods read history is set out in [Calculation window](/glossary/calculation-window); how a Combined's split differs from a strategy's, in [Combined weighting](/glossary/combined-weighting). ## How does the method picker help you find a method? The picker ("Choose allocation method") lists every method; its **Filter by goal** chips start on **All**, and each other chip keeps the methods serving that goal — a method serving two appears under both. A Combined's picker shows only its methods and their goals. ### What does the Simple rules goal mean? **Simple rules**: "Weights set by a rule you can read at a glance." Equal weights, Market cap, Ranking-based, Fixed weights and Floating. ### What does the Balance risk goal mean? **Balance risk**: "No instrument or group dominates the portfolio's risk." Risk parity, Inverse volatility, HRP and HERC. ### What does the Diversify goal mean? **Diversify**: "Makes use of how differently the instruments move." Min correlation, Max diversification, HRP, HERC and NCO. ### What does the Limit losses goal mean? **Limit losses**: "Looks at the worst days and periods, not at the average." Min CVaR, CDaR, EVaR, Scenario CVaR, Robust worst case and Stochastic programming. ### What does the Optimize goal mean? **Optimize**: "Looks for the best mix for a risk and return objective." MPT (Markowitz), Black-Litterman, NCO, Min MAD and Stochastic programming. ### What does the Follow a reference goal mean? **Follow a reference**: "Tracks or neutralises an index or an instrument." Market cap, which weights the way most broad indices do, and Mimicking and Beta neutral, which work against a reference instrument you choose. None is available to a Combined, so its picker does not show this goal. ## What do all allocation methods have in common? Every method, at either level, shares the same vocabulary. - **Weights.** One weight per item, as a share of the capital being allocated. Weights are relative: raw numbers that do not add up to 100 are standardized so the capital is fully used. A negative weight is a short position, which only some methods produce — see [Direction](/glossary/direction-long-only-long-short-short-only). - **Rebalance interaction.** The method recomputes its weights at each [rebalance](/glossary/rebalance) and the strategy trades back to them; in between they [drift](/glossary/weight-drift) with prices. [Floating](/glossary/floating) is the deliberate exception. - **Calculation window.** Methods that read history read it over the window the app calls **In-sample**: "Historical window used by the active method for volatility, correlation, beta, and similar calculations. Default 12." Equal weights, Fixed weights, Market cap and Floating do not use it — see [Calculation window](/glossary/calculation-window). - **Covariance matrix.** Methods built on volatilities and correlations — Risk parity, MPT, Max diversification, and inside a strategy HRP, HERC and NCO — carry a **Covariance matrix** choice — see [covariance matrix](/glossary/covariance-matrix). Apart from the method, each level has one dial for *how much* capital works: [**Leverage**](/glossary/leverage) inside a strategy, the [invested portion](/glossary/invested-portion) at the Combined level. Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)