Risk Management

Risk Management
Diversification – allocation of investments (don’t put everything into one)
Hedging – protection (buy a put option to protect a stock from a decline)
Stop-loss orders – an order to automatically sell if the price falls by X%
Position sizing – size of the position, depends on risk (smaller in riskier cases)
Portfolio rebalancing – reworking the portfolio to restore the target allocation
Risk budgeting – allocating risk limits to various strategies
Scenario analysis – calculation of results under different scenarios (war, crisis, etc.)
Stress testing – checking if the portfolio can withstand extreme conditions
Monte Carlo simulation – computer modeling of thousands of scenarios
Factor exposure management – controlling how much risk comes from each factor (value, momentum, etc.)
Tail risk hedging – protection from extreme events (controversial, expensive)
Dynamic hedging – constant adjustment of protection depending on the price