Quantitative Analytics Quarterly

Three Ways to Skin a Scenario

Scenario analysis is an essential tool for managing long-term expectations and exploring shorter-term volatility. In this edition of the Quantitative Analytics Quarterly, Morningstar’s quantitative research team runs an event, the oil shock of 2007-2008, through Morningstar’s suite of scenario analysis tools, namely Historical Scenario Analysis, Macro-Financial Scenario Analysis, and Market-Driven Scenario Analysis, and examines the impact of user-defined constraints on portfolio returns.

In this report, you will learn:
  • How different scenario analysis models can produce different outcomes
  • How using more than one methodology for scenario analysis is more advantageous
  • Which model is useful for exploring the relationship between the market and macro-economic trends