# Portfolio Optimizer Pro — full methodology

> Educational and hypothetical only. This describes structure, cost and past risk; it is not a forecast or advice. Source of truth: https://portfoliooptimizerpro.com/methodology.

## How the grade works

Portfolio Optimizer Pro grades a portfolio's structure, cost and past risk on a 0–100 scale mapped to letters A+ to F. Four factors are scored, averaged, then limited by structural ceilings.

- Diversification: How the money is spread across broad funds, single companies, regions and fund categories, from fund mandates and your weights. A range needs 90+.
- Risk and past drops: Whether past volatility and the worst historical drop stayed within the reference band for your chosen risk level. A range needs 90+.
- Cost: What the funds charge each year, weighted by how much of the mix each fund is. A range needs 90+.
- Long-run efficiency: Long-run return per unit of risk under published assumptions, compared with a reference mix of broad funds at the same risk. A range needs 95.4+.

Measured sub-scores are averaged with equal weight (25% each when all four are measured); missing ones are left out, never counted as perfect. If any A range criterion is unmet, each point above 80 counts 0.45, so the score stays in 80–89. When every criterion is met, each point below 100 costs 3. A+ also needs every sub-score at 95+. The lowest applicable ceiling below then applies.

Structural ceilings (the lowest that applies limits the score):
- Single companies above 30% of the mix in total, or one company above 10%: 79 (C+)
- One company above 25% / 95% or more: 69 (D) / 50 (F)
- Only single companies (3 or fewer) with one above 35%: 50 (F)
- US-only stocks: stocks above 30% of the mix, more than 95% US, no international or global fund: 79 (C+)
- Known fund-category overlap (similar mandates, not measured shared holdings): 76 (C)
- Weighted fee of 0.5% a year or more: 76 (C)
- Cash above 95% of the mix (Conservative: 92): 75 (C)
- Conservative risk level with no identified bonds or cash: 75 (C)
- Leveraged or inverse funds above 10% / 50% or more: 69 (D) / 50 (F)
- Crypto above 20%: 69 (D)
- One narrow sector above 50%: 69 (D)
- Partial input (some holdings unavailable): 76 (C)
- Less than 12 months of history: 80 (B-)
- Missing data: unknown fund, unverified fee, risk or long-run efficiency not measured (no A range grade): 89 (B+)
- Any A range criterion not met: 89 (B+)

A range criteria (all required):
- Diversification 90+ with at least 30% of stocks international or global
- Weighted fee 0.10% a year or less
- No known fund-category overlap
- Risk and past drops (risk fit) 90+ for the chosen risk level
- Long-run efficiency 95.4+

Letter bands: F 0–60, D 60–70, C 70–80, B 80–90, A 90–100.

Data: Adjusted monthly total-return history (Tiingo, with a cached fallback), aligned to the longest common history of all holdings; issuer reference records for fund categories and fees. Only derived results are returned.

## Scoring rules by factor (Moderate risk level)

### Diversification

How the money is spread across broad funds, single companies, regions and fund categories, from fund mandates and your weights.

100 × (1 − sum of squared single-company weights), minus 25 × the share outside broad funds and single companies; at most 96 without exact look-through. Loses up to 12 points when under 30% of stocks are international or global, and is capped at 80 by the overlap or US-only rules.

### Risk and past drops

Whether past volatility and the worst historical drop stayed within the reference band for your chosen risk level.

100 − 100 × the larger overshoot of volatility over 20% or worst drop over 40% (Moderate reference), never below 0.

### Cost

What the funds charge each year, weighted by how much of the mix each fund is.

100 − 100 × the weighted fee in percent: 1 point per 0.01% a year.

### Long-run efficiency

Long-run return per unit of risk under published assumptions, compared with a reference mix of broad funds at the same risk.

100 × this mix's long-run return per unit of risk ÷ the reference mix's at the same risk, capped at 100. Assumptions as of 2026-10.

## Risk reference bands

- Conservative: volatility 10% a year, worst drop 20%
- Moderate: volatility 20% a year, worst drop 40%
- Aggressive: volatility 35% a year, worst drop 60%

## Fees

Weighted expense ratio = sum of (fund expense ratio x weight). Fee cost over N years on $100,000 = 100,000 x (1 - (1 - weighted fee / 100)^N): a flat $100K balance before growth, the same formula as the site's expense ratio calculator.

## Overlap

Category-based: overlap means the funds' stated mandates cover related parts of the market (issuer reference records). It is not a measured percentage of shared underlying holdings.

## Limitations

- No exact fund look-through: overlap is category-based, not measured shared holdings.
- Past volatility and drops do not predict future results.
- Agent grades use the Moderate risk level, the website default.

## Measured examples

- Are VOO and VTI redundant? VOO and VTI had a 0.996 monthly return correlation from November 2010 to September 2026 (191 monthly returns), indicating closely related historical movement. Data as of September 2026. https://portfoliooptimizerpro.com/are-voo-and-vti-redundant
- Does QQQ add diversification to VOO? VOO and QQQ had a 0.91 monthly return correlation from November 2010 to September 2026 (191 monthly returns), indicating closely related historical movement rather than an independent return stream. Data as of September 2026. https://portfoliooptimizerpro.com/does-qqq-add-diversification-to-voo
- How correlated are dividend ETFs? Across SCHD, VYM, DGRO, VIG, HDV and NOBL, pairwise monthly return correlations ranged from 0.84 to 0.98 from August 2014 to September 2026 (146 monthly returns). Data as of September 2026. https://portfoliooptimizerpro.com/how-correlated-are-dividend-etfs
- What is portfolio correlation and why does it matter? Correlation measures how two return series move together, from −1 to +1. For example, VTI and BND had a 0.26 monthly return correlation from June 2007 to September 2026 (232 monthly returns). Data as of September 2026. https://portfoliooptimizerpro.com/what-is-portfolio-correlation

## Frequently asked questions

### What does the portfolio grade measure?

It describes structure, cost and past risk with four factors scored 0–100: Diversification, Risk and past drops, Cost, Long-run efficiency. Measured sub-scores are averaged with equal weight (25% each when all four are measured); missing ones are left out, never counted as perfect. If any A range criterion is unmet, each point above 80 counts 0.45, so the score stays in 80–89. When every criterion is met, each point below 100 costs 3. A+ also needs every sub-score at 95+. The lowest applicable ceiling below then applies.

### Why might a portfolio not reach the A range?

An A range grade needs every criterion: Diversification 90+ with at least 30% of stocks international or global; Weighted fee 0.10% a year or less; No known fund-category overlap; Risk and past drops (risk fit) 90+ for the chosen risk level; Long-run efficiency 95.4+. Structural ceilings also apply, for example "US-only stocks: stocks above 30% of the mix, more than 95% US, no international or global fund" caps the score at 79 (C+).

### Where does the data come from?

Adjusted monthly total-return history (Tiingo, with a cached fallback), aligned to the longest common history of all holdings, and dated issuer reference records for fund categories and fees. Only derived results are shown, never raw price series.

### How is fund overlap measured?

Category-based: overlap means the funds' stated mandates cover related parts of the market (issuer reference records). It is not a measured percentage of shared underlying holdings.

### Is the grade investment advice?

No. This grade describes structure, cost and past risk. It is not a forecast or advice. It is educational and hypothetical; past results do not predict future results.

## Pricing

The checkup and A–F grade are free. Deep Analysis is a $12 one-time, dated snapshot report for the exact holdings and weights (credited toward a first Pro payment within 14 days). Pro is $15/month or $129/year.

Only in the paid report: historical stress periods (2008, 2020 and 2022, where your history covers them) and rolling 5- and 10-year comparisons with SPY and RSP for your exact mix; risk contribution by holding and a walk-forward test on unseen years (2+ holdings); side-by-side hypothetical mixes (2+ holdings); a score explorer re-running your grade with 10% slices of broad exposures; return sensitivity; and a dated PDF/CSV snapshot of your exact holdings and weights. The grade and its full breakdown, fees, category overlap, the growth chart and the basic benchmark table stay free.