Why Sharpe Ratio And Other Traditional Stats Can’t Prepare You For What’s Coming

Are you thinking about interest rate risk and how it might interact with equity risk?

If you are using risk models, beware, they can be lying. We can improve the accuracy of the models by using portfolio stress testing, but we first must understand where their pitfalls lie. This post has a bit of a quant flavor to it, but the key point is very important for advisors as well. Traditional risk modeling and stress testing approaches are misleading when it comes to interest rate risk, they cannot help you prepare your clients for what’s coming.