medium · FRM Part 1
In a risk-budgeting framework, if an asset has a Component VaR that is higher than its capital weight (e.g., 10% of risk from 5% of capital), what does this tell the manager?
- The Marginal VaR of the asset must be negative.
- The asset is perfectly uncorrelated with the market index.
- The asset has a beta relative to the portfolio greater than 1.0.
- The asset is a powerful diversifier for the portfolio.
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