What risk do completeness portfolios aim to eliminate?

Completeness portfolios aim to eliminate misfit risk. Misfit risk refers to the potential for the actual portfolio not aligning with the investor's intended investment strategy or risk profile due to unaccounted-for exposures. By using completeness portfolios, investors can ensure their overall exposure matches their desired characteristics by integrating additional assets or derivative instruments that fill in the gaps created by their main investment portfolio.

The concept of a completeness portfolio helps investors achieve their specific investment goals by allowing them to cover various risk factors or market segments that are underrepresented in their existing holdings. This strategy enables a more tailored approach to risk management and investment performance, ensuring that any misalignment between an investor's risk appetite and portfolio exposures can be effectively addressed.