Historical Portfolio Stress-testing

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In previous articles, Quintin gave an overview of portfolio stress-testing, what it can and cannot do, offered a definition, and outlined the range of stress-test methodologies available.  In the fourth article in this series, he explores techniques used in applying historical stress-tests to portfolios.

To recap, extreme market moves can negatively impact portfolios in ways that may not be captured by conventional risk measures and diversification breakdown may mean that portfolio values are not protected. With guidance, you may be able to use stress-testing to estimate the impact on your clients’ portfolios and arrange for appropriate restructuring to limit the downside.  This helps demonstrate that advisers and investment managers are working hard to protect portfolios and clients can be reassured that robust investment processes are in place.

This article is the fourth in a series making up a helpful introduction to IFAs less familiar with portfolio stress-testing.  The previous articles can be found here:

Download the Historical Portfolio Stress-testing

  • Q G Rayer (2017), Managing risk: stress-testing investment portfolios, DISCUS, available at http://discus.org.uk/managing-risk-stress-testing-investment-portfolios/, 3 pages, 26 January 2017.
  • Q G Rayer (2017), A more detailed look at portfolio stress-testing, DISCUS, available at http://discus.org.uk/portfolio-stress-testing/, 3 pages, 13 February 2017.
  • Q G Rayer (2017), The different types of portfolio stress testing, DISCUS, available at http://discus.org.uk/different-types-portfolio-stress-tests/, 3 pages, 9 March 2017.

Q G Rayer (2017), Managing risk: historical portfolio stress testing, DISCUS, available at http://discus.org.uk/historical-portfolio-stress-testing/, 3 pages, 4 May 2017.


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