Historical Portfolio Stress-testing

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 which 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:

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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Dr Quintin Rayer

About Dr Quintin Rayer

Quintin is a Chartered Fellow of the Chartered Institute for Securities and Investments, a Chartered Wealth Manager and holds a Physics degree from Imperial College London and a Physics doctorate in atmospheric physics from Oxford University and is a Fellow of the Institute of Physics.