Geographic exposure is not the same as currency exposure

A portfolio holding euros, francs and sterling is holding three currencies. It is not, in any meaningful sense, holding three positions. All three sit in one region, respond to overlapping conditions and tend to move together when that region is what is moving.

CentDNA separates these because they behave differently. Currency exposure is what an instrument references. Geographic exposure is where the risk actually sits. A profile can be well spread on the first measure and concentrated on the second, and the second is the one that determines what happens on a bad day.

The /allocate tool exists to make this visible. Combine two or more cents and it reports three things: currency concentration, geographic concentration, and issuer concentration — each as a Herfindahl index over the combined exposure, where a high number means the weight is bundled and a low number means it is spread.

Issuer concentration is the one people forget. Four instruments in four different currencies, all from the same issuer, is diversified in currency and not diversified at all in counterparty. Every one of those positions depends on the same institution continuing to function. The allocation tool names this case explicitly rather than reporting a flattering currency figure and staying quiet about the rest.

The practical reading: when an allocation looks well spread, check which axis it is spread on. Adding a fifth instrument from a region you already hold changes the profile far less than adding a first from one you do not.