Q$3.$ Risk Management. A junior manager from the risk management department calls you and asks you to help him analyze several portfolios from managers all around the world. They send you a spreadsheet marked $$exhibit $2.$ Annoyingly the junior risk manager doesn$$t know a lot about the actual composition of the portfolios beyond the risk metrics spit out the firm$$s risk system. Given that you$$re so approachable, they thought they would ask you first before addressing the portfolio managers directly. For funds A$-$D$,$ they send you general risk metrics. Most of them you$$re familiar with, but they remind you that the coefficient to oil prices and to small cap is from a regression model, and is kind of like a beta to that specific factor instead of markets generally. Similarly, the risk contribution of the riskiest position is the $\%$ of total risk that the riskiest position represents $($all positions together $=100\%$ of the risk of the book$),$ while manager conviction is a rating of how much of an $$edge$$ the manager believes $($s$)$he has in that position $($how strongly they believe the position will perform well$).$

A$.$ For portfolios A$-$D$,$ what most likely does each one have in it $($e$.$g$.,$ what particular types of stocks, fixed income and derivatives do they have$).$ Try to be as specific and detailed as possible.

D$.$ If you were looking to provide feedback to the PMs about low hanging fruit to improve the portfolios, where would you start? Why?

E$.$ The management wants to compute a stress scenario based on trump tariffs. This is equity markets down $15\%,$ credit spreads wider by $1\mathrm{.}5\%,$ Rates up by $2\mathrm{.}5\%.$ What is the effect on each portfolio? Which portfolio$($s$)$ do you think are most at risk of the stress scenario not correctly capturing all the risk?

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