Downside protection: how to stress-test portfolio diversification

Research output: Contribution to specialist publicationArticle

Abstract

This article takes a closer look at stress-testing portfolio diversification. It is the latest in our series, which has so far focussed on general overviews, classification, detail on specific approaches, setting up a stress-testing programme, and application to P1’s models.

Extreme market moves can negatively impact portfolios in ways which may not be captured by conventional risk measures, and diversification breakdown may mean that portfolio values are not protected. Stress-testing may be used to estimate portfolio impacts, and if necessary, appropriate restructuring can limit the downside. Typically, stress-testing may look at significant historical market events, or scenarios that reflect specific concerns.
Original languageEnglish
Number of pages3
Specialist publicationDISCUS (Discretionary Investment Services Coming Under Scrutiny) platform article
Publication statusPublished - 14 Mar 2019
Externally publishedYes

Bibliographical note

Q86

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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