Sample interview questions: How do you assess the impact of market volatility on portfolio performance?
Sample answer:
Assessing the Impact of Market Volatility on Performance
As a Portfolio Manager, I employ a comprehensive approach to assess the impact of market volatility on investment performance:
1. Volatility Metrics:
- Historical volatility (standard deviation): Provides a measure of past price swings.
- Implied volatility (options pricing): Estimates future price volatility based on options markets.
- Volatility index (VIX): A market sentiment indicator that measures expected volatility.
2. Historical Analysis:
- Examine portfolio returns during periods of varying volatility.
- Correlate portfolio performance with market volatility indices to identify potential drivers.
3. Sensitivity Analysis:
- Use Monte-Carlo simulation or other techniques to model portfolio returns under different volatility assumptions.
- Assess how changes in volatility affect portfolio risks, such as value-at-risk (VaR) and expected shortfall.
4. Market Observations:
- Monitor market news and economic indicators for potential sources of volatility.
- Track the actions of large institutional investors, such as central banks and mutual funds, which can influence market dynamics.
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