Given a portfolio consists of Stock = usd 40, Bond = usd 40, commodity =usd 20. Also given the correlation between these assets.

Scenario 1 : stock down by 30%

When performing scenario analysis, do we usually take correlation into account? or just do it this way:

Stock= 40*0.7=28 Bond= 40 Commodity= 20

Thus portfolio value becomes usd 88.

Is this the correct way to do scenario analysis?

  • $\begingroup$ What is the correlation in your example? $\endgroup$
    – amdopt
    Apr 17, 2019 at 15:56
  • $\begingroup$ Equities and Comm , +0.25 Equities and Bonds, 0.5 Bonds and Comm,-0.2 $\endgroup$ Apr 17, 2019 at 16:14
  • $\begingroup$ Were the bond and commodity markets closed on the day of your analysis? If so, your portfolio value seems fine, if not, it appears you are missing some data :) $\endgroup$
    – amdopt
    Apr 17, 2019 at 16:35
  • $\begingroup$ What does that mean? Can I just shock the stock as above or what you would suggest? Yes all are historical data already. $\endgroup$ Apr 17, 2019 at 16:39
  • $\begingroup$ You can analyze a scenario in that way if you like. In doing so though you are throwing your correlations out the window. I didn't realize your goal was to shock a single asset. $\endgroup$
    – amdopt
    Apr 17, 2019 at 16:55


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