Measuring Portfolio Risk for Multi-Asset Investments

Jane Doe is a financial advisor managing a multi-asset portfolio for a high-net-worth client, Mr. Smith. The portfolio consists of equities, fixed income, real estate, and alternative investments. Given the current economic environment, Jane is tasked with evaluating and measuring the risk associated with this diversified portfolio.

Mr. Smith is particularly concerned about the following risks:

• Market Risk: Volatility associated with equities due to geopolitical developments.
• Interest Rate Risk: Impacts on fixed income securities from potential changes in central bank policies.
• Liquidity Risk: Challenges associated with the real estate and alternative investments in times of financial stress.
• Concentration Risk: Potential overexposure to specific sectors or asset classes.

In response to Mr. Smith's concerns, outline a comprehensive analysis for measuring the overall risk of the portfolio. Your response should address various risk measurement techniques such as Value at Risk (VaR), Stress Testing, Scenario Analysis, and the use of Beta in measuring market risk. Discuss advantages and limitations of each method with a focus on how they can be applied to the different components of the portfolio. Finally, recommend a risk management strategy that aligns with Mr. Smith's risk tolerance and investment objectives.