New Perspectives on Portfolio Risk:
The Economy Matters

 1.            Review of traditional risk measures

                a.            Conventional wisdom is Beta

                b.            Which "Beta"? Where do you get Beta?
                              (Review of different sources
                              and ambiguities.)

                                i.             CAPM, Market Model, Fama
                                               French 3 Factor with Momentum

                                ii.            Online sources

                                iii.           Comparison -- underlying assumptions matter and
                                               aren't easily known               

                c.             Ranking methods (Sharpe, Sortino, Treynor)

                                i.             These aren't absolute measures

                                ii.            They can produce different rankings of portfolios

                d.            Volatility

                                i.             Measuring past movements

                                ii.            Forecasting (GARCH, etc.) generally short time horizons

                                iii.           Implied volatilities from options market

                                iii.           Volatility forecasts usually not computed for a portfolios
                                              (just stocks only)

2.            Composite Macro Risk Index (CMRI)

                a.            Reflects key economic drivers

                b.            Eta Statistics are probability-adjusted elasticities

                c.             Eta Profile diagnoses excess exposure to specific economic 
                                 risks ("placing bets")

                                i.             Eta Profile

                d.            Comparison of CMRI with Beta

                                i.             Forecasts future volatility

                                [ii.          Stability over time ]

                e.            Aggregates for portfolios

3.            How is risk controlled in a portfolio? Consider the 
                Fall 2008 crash

                a.            Minimize Beta

                b.            Minimize CMRI

                c.             Minimize CMRI with Beta Filters

4.            Uniform Prudent Investor Act

5.           You can use CMRI and Eta Profiles to improve your
              clients' portfolios

                a.            Target CMRI levels for risk levels, monitoring suitability

                b.            Identify stocks which may have undesired levels of economic
                               risk exposure

                c.             Identify stocks or portfolios which have excess exposure to
                                a few economic factors

                d.            Better documentation for Uniform Prudent Investor Act

                e.            Portfolio specific reporting whenever meeting with clients

                f.             Effective measure of how portfolio and investing decisions
                               impact overall risk}

6.            Current Economic Status

                a.            Current 18 factor profile

                b.            Recent trends in key factors

                c.             Status of key indices (Eta Profile, CMRI)

                d.            Status of several popular stocks (Eta Profile, CMRI)

                e.            Status of several popular mutual funds (Eta Profile, CMRI)

7.           Other fun with Eta Profiles and CMRI

                a.            Asset Allocation

                b.            Identify closet indexing

                c.             Emulate interesting targets

                d.            Portfolio migration, monitoring, and control

                e.            MacroRisk Stars, based on Economic Power Index 
                              (for indicating favorable economic conditions) &Potential
                              Index (for indicating potential price movements)}