Stress scenarios
What the portfolio would lose in a repeat of past market falls, estimated from its beta.
Formula
Scenario move = portfolio beta × the S&P 500's move in the episode
Inputs
- Episodes. COVID crash −33.9%, global financial crisis −56.8%, dot-com bust −49.1%, 2022 rate shock −25.4%, February 2018 volatility spike −10.2%, an ordinary 10% correction, and a 20% rally.
- Per holding. Each holding's loss in a 20% market fall: its value × −20% × its beta.
How to read it
A portfolio with a beta of 1.2 loses about a fifth more than the index in each episode.
How to use it
Checks that the fall you could sit through matches the portfolio you hold.
Limitations
First-order only: correlations rise in a crash, so real losses tend to be worse than a beta model says, and most of today's holdings did not exist through those episodes. A beta of 1.0 is assumed when it cannot be measured.
In Kereon
Portfolio · Risk. With the portfolio's beta to the benchmark chosen on the page.
Also called: stress test, scenarios, crash test.