Effective Strategies for Credit Risk Management in Portfolios

Hard Risk Management Credit Risk Management

As a portfolio manager responsible for overseeing a diversified investment portfolio, you are particularly concerned about the credit risk associated with your fixed-income investments. Recently, you have noticed an increase in market volatility and a corresponding rise in credit spreads, particularly for lower-rated bonds. In light of this context, you are evaluating various credit risk management strategies to protect your portfolio.

Which of the following strategies would most effectively mitigate credit risk exposure in accordance with best practices in portfolio management?

Concentrate your bond investments in high-yield securities to capitalize on their higher return potential.

Implement a credit derivatives strategy, such as credit default swaps, to hedge against potential defaults.

Maintain the same level of exposure to lower-rated bonds but increase overall portfolio duration.

Hint

Submitted1.7K

Correct1.4K

% Correct80%