Risk Attribution

Which of the following is _most accurate_ regarding a factor-based risk approach?

Correct! A factor-based approach starts with a top-down approach, using modeling and forecasts to estimate broad market risk factors, and following this with sector allocations while avoiding firm-specific risk.

Incorrect. For these managers, it is best to look at the relative contribution of securities to tracking risk.

Incorrect. For these managers, it is best to look at the relative contribution of securities to total portfolio risk.

It's best applied to managers with a top-down approach

It includes analysis of marginal contributions to portfolio risk

It is best applied to managers with a relative benchmark