medium · FRM Part 2 Risk & Investment Management
An analyst calculates that Asset 1 has a Component VaR of 120% of the total portfolio VaR.
What is the most likely interpretation of this finding?
- Asset 1 is highly diversified and reduces the risk of the total portfolio.
- The portfolio is not subadditive.
- There are other assets in the portfolio with negative Component VaRs acting as hedges.
- The analyst has made a calculation error, as components cannot exceed the total VaR.
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