The property that the risk of a combined portfolio is no greater than the sum of the risks of its parts. It expresses the idea that diversification should not increase risk.
Where you will meet it
Subadditivity comes up in 2 learning outcome notes across the FRM syllabus.
A few of them:
Measures of Financial Risk FRM Part I · Valuation and risk models
“Subadditivity: ρ(X + Y) ≤ ρ(X) + ρ(Y), so diversification cannot increase risk and merging two books cannot create risk.”
Non-Parametric Approaches FRM Part II · Market risk measurement and management
“VaR is not coherent because it can violate subadditivity.”
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