medium · FRM Part 1 Valuation and Risk Models
If an asset's beta relative to the portfolio is negative, what does this imply about its Marginal VaR and its effect on portfolio risk?
- The Marginal VaR is positive, because VaR can never be a negative number.
- The asset is uncorrelated with the portfolio, and its risk contribution cannot be measured.
- The Marginal VaR is negative, meaning increasing the position size will decrease the total portfolio VaR.
- The Component VaR will be zero, because negative risk contributions are not allowed in institutional reporting.
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