Advanced Techniques for Measuring Risk in Diversified Portfolios

At a large wealth management firm, the chief investment officer (CIO) has expressed concerns about portfolio risk associated with the increasing volatility of capital markets. In light of recent geopolitical uncertainties and economic forecasts that anticipate fluctuating interest rates and inflation, the firm is re-evaluating its risk management strategies.

Your task is to analyze how to effectively measure and manage the risk within a diversified portfolio that includes equities, fixed income, real estate, and alternative investments. Specifically, you should address the following:

• Describe two advanced risk measurement techniques that would enhance the firm's ability to evaluate the risk of this diversified portfolio.
• Discuss how these techniques can be applied in the context of current market conditions.
• Explain how the results from these risk measurement techniques would inform the firm's investment strategy and asset allocation decisions.

Provide a comprehensive response that evaluates both qualitative and quantitative aspects of the risk management process.