What is Portfolio Stress Testing?
Stress testing is about assessing the potential impact of economic scenarios (i.e. coronavirus, inflation, etc.) on your portfolio and other investments which helps put risk and potential losses into real terms. In a portfolio stress test, we construct “what-if” scenarios based on real life macro-economic uncertainties, and measure their potential impact on your portfolio.
How it Works
In a stress test, we use the relationship between an investment and an economic indicator to project possible performance.
Key Elements of the Portfolio Stress Test
1. Find the Connections
HiddenLevers uses big data to measure millions of relationships between the economy and 35,000+ investments.
2. Ask the Big What-Ifs
HiddenLevers’ research team creates scenarios to model recessions, crises, and other economic events using historical research and analysis on how economic indicators are correlated.
3. Model the Impacts
In a stress test, investment performance is projected using the relationships measured in step 1, applied to the scenario assumptions in step 2.