October 2023

The importance of Stress Testing and Scenario Analysis in multi asset portfolios.

In multi-asset portfolios, the ability to assess portfolio performance across diverse market conditions is crucial. Senior management and clients often seek insights into portfolio construction, risk management, and sensitivity to market factors. This requires leveraging scenario analysis and stress testing. Scenario analysis and stress testing are essential tools for evaluating multi-asset portfolios. They guide decision-making in portfolio construction, risk assessment, and client communication. However, creating realistic yet intuitive scenarios and applying them consistently to portfolios can be challenging.

In this paper, we explore the methodologies of scenario analysis and stress testing, from basic stress tests to advanced scenario modeling. We emphasize their significance in portfolio management, address challenges, and offer practical insights from a portfolio manager’s perspective. These techniques not only enhance internal communication but also enable effective external communication with clients and stakeholders.


You can read the full article below.

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We provide insights into various scenario analysis and stress testing methodologies, applications and challenges for investment managers.