A new perspective on risk, focusing on extreme gains and losses in your investment strategy
Barra Extreme Risk (BxR) can be used to analyze short-term Volatility, Extreme Shortfall and Extreme Gains using a combination of standard and extreme risk analytics, along the dimensions of Barra factors and portfolio constituents.
Extreme risk measures are computed directly from historical Barra factor data that has been adjusted by historical covariance, which is then updated to reflect the current market environment.
- Multiple views of risk to complement Barra factor models. BxR offers additional insight by focusing on large losses or gains. The BxR analytics are similar to standard Volatility analytics, so extreme risk can be analyzed using familiar tools (Marginal Contributions to Risk, Risk Contribution, Beta, Correlation, X-Sigma-Rho risk decomposition).
- Extreme correlation which measures the likelihood of extreme losses (or gains) happening at the same time across different factors, and assets.
- Analysis of extreme gains providing insight into the asymmetry of bets and possible large upside potential, using familiar tools and dimensions.
A wide range of papers on extreme risk management, written by the Barra analytics research team responsible for the development of BxR, can be found in our Research Database.