Turning The Lens: Rotating Risk Models For Insight

(FTSE Russell Research Report)

Key takeaways:

• Effective risk attribution should be directly aligned with the underlying investment process to ensure relevance and actionable insights
• Our research demonstrates how risk attribution can be aligned to risk factors beyond the original risk model
• We expand risk attribution to market regimes and correlation changes

Points of differentiation:

• Enhanced flexibility with structural alignment: Our approach enables more nuanced and targeted risk attribution — tailored to investor needs — while preserving the total risk profile defined by the original risk model
• Forward looking and expansive scope: We extend traditional risk attribution by incorporating factors beyond the original model and evaluating risk impacts under scenarios outside the model’s construction window, offering a more comprehensive and adaptive perspective

What does our research mean for investors?

• Our framework aligns risk attribution with the way investors construct and manage portfolios — ensuring that risk insights reflect the investment process and are not dictated by the risk model construction
• Investors can explore the impact of hypothetical scenarios or scenarios that fall outside the original model’s time window, enabling more robust stress testing and forward-looking risk assessment

Read the report here

Originally posted on Jun 30, 2025 on LSEG blog

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