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A new perspective on risk, focusing on extreme gains and losses in your investment strategy.
Barra Extreme Risk can be used to analyze short-term Volatility, Extreme Shortfall and Extreme Gains using a combination of standard and extreme risk analytics, along the dimensions of Barra factors and portfolio constituents. A broad range of risk analytics describes the impact of portfolio rebalancing, the degree of correlation of factors with the portfolio, and the return that is required to compensate for risk (of fundamental factors, industry groups, assets, and so forth). BxR offers an empirical view of market history using a long daily history of Barra factor returns and the Barra short-term covariance matrix. BxR computes extreme risk measures directly from historical data that has been adjusted by historical covariance, which is then updated to reflect the current market environment.
BxR forecasts Value at Risk and Shortfall over a short horizon of 1-10 days, enabling you to identify factors and assets contributing most to the risk of large losses in your portfolio. Familiar statistics such as Marginal Contribution to Risk and Betas guide users on rebalancing portfolios to fit mandates.
With the BxR Developer's Toolkit, you can access an API that provides you with the flexibility to integrate the BxR library into your own custom investment platform. BxR is powered by daily factor returns from the Barra multi-factor models, allowing you to analyze your equity portfolios.
Key benefits are:
Connection to your platform
Through its different APIs, the BxR Developer's Toolkit can be easily integrated into many research/backtesting environments, or production-related processes. Interfaces are available in C++, Java, and MATLAB for 32-bit Microsoft Windows®, and 32- bit and 64-bit Linux®.
Multiple views of risk
BxR serves as a complement to the Barra factor models. While Volatility gives the broadest view of risk, BxR offers additional insight by focusing on large losses or gains. Extreme Shortfall analytics correspond to the standard Volatility analysis toolkit, consisting of Marginal Contributions to Risk, Risk Contribution, Beta, Correlation, and X-Sigma-Rho risk decomposition. BxR supports both active and total risk. The model also offers users a range of specific risk models to choose from.
Extreme Correlation
BxR implements Extreme Correlation, which measures the likelihood of extreme losses (or gains) happening at the same time across different factors, and assets. Users can contrast this measure with a Volatility-based correlation.
Analysis of Extreme Gains
Both extreme losses and extreme gains can be analyzed by BxR, providing insight into the asymmetry of bets and possible large upside potential. Extreme Gain can be analyzed in the same way as Extreme Shortfall, using familiar tools and dimensions.
Research and support
BxR uses proprietary analytics and forecasting tools developed by MSCI’s analytics research team. A wide range of papers from this team on extreme risk management can be found in our Research Database.
To find out more about how Barra Extreme Risk can be used in your investment management platform and risk management processes, please contact us.
