Most investment portfolios are a collection of risk factors, such as exposure to credit and equity risk. Monitoring and managing these factors is critical. The standard approach is reviewing portfolios through a plain-vanilla asset allocation lens – 60% stocks, 30% bonds, 10% cash, for instance. But the standard methodology is a blunt instrument. For a clearer view of what’s driving your portfolio, decomposing risk with factor-based analysis offers a higher level of insight.
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