Employed for portfolio insurance and to mitigate risks for individual securities with potentially negative upcoming events thereby smoothing out the return profile and lowering the standard deviation of returns.
to detect deteriorating trends in a timely manner.
+ Effect diversification
+ Enhance alpha generating capacity
+ Smooth out return profile on an annualized basis
Stress & VAR Tests
Minimum 30 – 40 securities, reduce volatility.
Maximum 5% for an individual large cap security, 10% with using options.