QSYS v1.0

🔴 43× leverage — LTCM borrowed $1.3B for every $1 of capital. A mere 2.5% adverse move wiped out all equity.

🔴 5% concentration — Two Russian bonds were a large fraction of the portfolio. Correlation breakdown during crisis destroyed diversification.

🔴 Correlation regime shift — Correlations between "uncorrelated" assets → 1.0 in crisis. LTCM's risk models assumed stable correlations.

🟡 The fix: Size for correlation regime shift. Assume correlations → 1.0 in crises. Cut position sizes to ¼ of what "normal" VaR says.

🟢 Our 3-sleeve inverse-vol: By diversifying across uncorrelated asset classes (equities, bonds, gold), each sleeve's weight is inverse to vol, naturally capping concentration and reducing drawdowns.