Technologies for health checking and risk monitoring/managing/reporting specific portfolios

Meeting heightened regulatory requirements and digital client needs with our #RiskTech, #RegTech and #InvestTech solutions for both Wealth Management and Institutional Investment Management

Monthly updated show case for our portfolio health check [latest update: 2016-04-29]

Our solution is able to screen or 'X-ray' most portfolios of financial market instruments for portfolio health status in terms of diversification effectiveness and hidden risk concentrations. This applies to portfolios of financial institutions and to portfolios of wealth&asset management clients. Portfolio health check results are effectively documented and communicated/reported to supervisors, clients, portfolio managers, advisors and risk managers.

In the second step, our system is able to deliver recommendations and changes of the portfolio in order to cure the defects and to actively de-cluster, de-network and de-risk the portfolio. It can be strictly defined to what extend our system is allowed to change the portfolio. Our advanced risk technology is applied here based on relational data analytics (network/graph science), predictive analytics, machine learning and optimisation.

Wealth Management Portfolios

Clients demand for digital solutions to automatically health check and risk monitor their portfolios in a custom way. Complex market dynamics and their impact on client portfolios need to be understood and communicated quickly and effectively, at low response time to changing market conditions. Alternatives and recommendations to cure the portfolios need to be generated. This can be achieved with our solutions for most capital market portfolios. Wealth Managers can improve their status of trusted advisor and attract clients with advanced digital tools. Also, heightened regulation/directives on documentation and consumer protection is facilitated.

Institutional Investment Portfolios

Regulation on risk management and reporting is forcing financial institutions to use more technology for advanced risk analysis, management and reporting. Identifying, ad-hoc reporting and managing risk concentrations, diversification levels and conducting stress tests on portfolio level are core topics of latest major regulations/directives/standards like Basel (ICAAP/SREP), Solvency (ORSA), MaRisk and IFRS. Our advanced risk analytics&reporting engines for most capital market portfolios rationalise complex financial markets, help to fulfill regulation and generate ad-hoc supervisory reporting. At the same time, it improves investment intelligence as it is now possible to systematically de-cluster, de-network and de-risk portfolios.

                              Risk Parity                                                                      Firamis strategy

Looking at the latest portfolio weights of Firamis strategy overlayed on the current nested market structure it is observed that weights are well spread across the nested clusters, thus ensuring a decent level of portfolio diversity.


Matrix of daily/weekly asset returns of the positions in a specific investment portfolio


In-depth scientific analysis of hidden risk concentrations, emerging systemic risk and contagious/infectious patterns of interconnectedness and nestedness within the portfolio that endanger diversification levels.
Results come as intuitive numbers/metrics as well as interactive portfolio screenings and visualisations. This includes interactive risk management reports on the as-is situation, the contextual analysis with respect to portfolio history and as foresight of network diversification levels and emerging risks, including specific recommendations to ‘cure’ the portfolio. Also, this includes functionalities for interactive stress testing and scenario analysis.
This can also be used as advanced regulatory risk reporting&communication tool
Technology/methodology used: graph theory, machine learning, network and cluster analytics
Automated and customised portfolio health checks for your clients can also be designed with our solution


Background of the approach

Effective diversification and advanced risk management is essential today in institutional investment management. An effective risk reporting is important for both internal communication and for regulation.
We have advanced technologies and solutions to detect, manage, communicate and report hidden risk dynamics and concentrations in portfolios (“Portfolio Risk X-Ray”). We can de-cluster, de-network and de-risk most capital market portfolios. Also, we can visualise the results interactively.

Today’s financial markets are very complex and they are dominated by increasing interconnectedness (e.g. due to globalisation). This creates hidden risks driving the success and robustness of investment portfolios. It is nearly impossible for humans to discover these. We need data-driven, evicence-based analytics and cognitive financial technologies that help us to enhance human risk management&communication intelligence.

Our approaches and systems do exactly this. They create new standards in rationalising complex financial markets and addressing diversification.They help you risk manage your portfolio and effectively communicate in your organisation and with your regulator.


Regulations on diversification, risk concentrations and stress testing are sharpening

  • the rules of Solvency and Basel let supervisory authority check whether the risk management of a financial institution is adequate and effective and whether there are robust and sustainable risk bearing capacities
  • also, the general investment principles of security, profitability, liquidity, mix and spread have to be fulfilled
  • degrees of risk concentrations and diversification effects as well as respective stress tests are in the focus now: a financial institution has to be able to show that it is capable of measuring, managing and risk bearing these effects. An example are the liquidity portfolios (High Quality Liquid Assets; HQLA) of financial institutions: evidence of sufficient diversification must be proven.
  • latest developments show that senior management will be much more involved: they have to document their fitness in terms of knowledge about their institution’s risk and how to manage it.

Use our RegTech solutions to meet and moderate these regulatory pressures.


Monitoring and reporting the constructed ETF portfolio:

  • risk management, forecast and early warning system
  • benchmark analysis, scenario analysis and stress testing
  • reporting and communicating the portfolio structure internally and to clients

Further Applications:

  • Portfolio diversification by "Correlation@Risk"
  • Regimes to construct an all-weather-portfolio
  • Cluster and regime evolution as early warning and structural break indicator
  • Reduction of cluster risk of large portfolios
  • Indicator for strategic and tactical asset allocation
  • Cycle-neutral calibration of models
  • Measurement of hedge effectiveness and finding proxy hedges
  • Dynamical online system as monitoring cockpit and trading tool
  • Forecasting states and correlations by state transitions and path simulations

A further description of our philosophy can be found here.

Our work is based on this and this research.

Note that this page is just for information and no investment advice.