CFA Level 2
Portfolio Management

Stress Testing Objectives in Portfolio Management

Easy Risk Management Applications Stress Testing

As part of the risk management framework, portfolio managers often perform stress testing to evaluate how their portfolios would react under extreme market conditions. Stress testing can help identify vulnerabilities and inform decision-making processes. It allows managers to understand potential losses beyond regular market fluctuations.

Consider a portfolio manager who is assessing the stress resilience of a diversified equity portfolio. In conducting stress testing, which of the following objectives is primarily achieved?

Hint

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