Multi Dimensional Risk Management

CFA Level I
#1

What is it? The book unfortunately provides just one example that isn’t very clear to me:

“One popular approach evaluates risks by their underlying risk classes, such as equity, fixed income, commodity risk, and so on, and then allocates investments by their risk class.”

(Institute 286)

Institute, CFA. 2016 CFA Level I Volume 4 Corporate Finance and Portfolio Management. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

#2

Slowly finding info on this. Basically my interpretation of this is: if you are looking at a portfolio construction problem, the way you would first look at the problem is by allocating your assets to different asset classes. However, just because you invest in fixed income and equity doesn’t guarantee that you’re not buying the same risk in two different asset classes. So a multidimensional risk management approach does asset allocation based on risk classes not asset classes.