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Riskdata charts extreme risk budgeting


A risk management provider claims investors can cap potential losses by integrating "extreme risk budgeting".

In its new comparative study Keeping the Devil in its Box, Riskdata defines extreme risk budgeting as the practice of setting up and complying with a limit on the maximum loss of a portfolio.

The study compares four portfolio construction techniques - capital allocation, risk allocation, Markowitz and Riskdata's FOFiX.

The portfolio constructed in the study represented an investor willing to limit the worst month to a loss of 3% with 99% confidence. Portfolio reallocation was made once a year, with a three-month