Investment portfolio stress testing

Stress testing in portfolio management is basically running computer simulations to identify risks to portfolios and assess how the investment responds to the risk and other related market conditions.

These tests are a common feature in the financial industry to gauge and test the resilience of investments to identified risks and also to evaluate internal processes and responses. Real-life scenarios are used to measure their impact on portfolios.

In today’s world, it is important to include scenarios of cyber-attacks, breach of data, and lawsuits to minimize risk.

Stress testing is an integral part of portfolio management to meet regulatory requirements, evaluate the impact of risk manifestation, and develop strategic plans.

At CWPIM, portfolio stress tests have the following elements, apart from customized ones that are unique to each sector we make and manage investments in.

• Scenario:
  This is the simulation of the risk associated with the sector investment is made in.
  We take into account geopolitical situations, macro-economic conditions, current cyber-security issues, and many other factors which are generalized or can be customized to fit a certain portfolio.
• Analysis:
  Tracking tens on different factors that can affect investment, our team analyzes commodities, currencies, industry-specific rates, and more metrics to understand their effect on our clients’ assets.

• Assets
  While stress testing, we use each client’s asset sector to create generalized and customized scenarios so the client has the required protocols in place and we are fully aware of any eventuality that can come to pass.

At CWPIM, we use industry-standard programs and methodologies to conduct portfolio stress tests.

Once we have conducted portfolio stress tests, we work with the client to devise hedging strategies to minimize loss. Our team invests a lot of time in researching economic trends, historical records, and statistical data to arrive at a conclusion that is back by solid evidence.

Our emphasis is not on controlling the effects of damage already done. We focus on identifying and mitigating risks before they actually come to pass.  We employ a quantitative approach to testing economy and market conditions to help clients make better decisions based on their goals, depending on whether they are individuals or corporations.