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Category:Understanding the Software -> Turbulence

It has often been shown that volatilities and correlations are unstable. They may differ significantly depending on the sample used to estimate them. This instability may lead investors to underestimate their exposure to loss and to construct portfolios that are not sufficiently resilient to turbulent markets.

Windham’s Turbulence methodology partitions historical returns into distinct samples that are characteristic of quiet markets and turbulent markets. This separation enhances risk management in several ways.

It enables investors to stress test portfolios by evaluating their exposure to loss during turbulent conditions. It also enables investors to structure portfolios that are more resilient to turbulent markets. Finally, it enables investors to shift their portfolios’ risk profiles dynamically to accord with their assessment of the relative likelihood that market conditions will be quiet or turbulent.

Articles in category "Understanding the Software -> Turbulence":

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