Risky portfolio confusing credit, creating, better, equity, reduce

anshultongia

(1)I’m creating my CDO potfolio, is credit risk of synthetic CDO less than Cash cdo? on the other hand, in synthetic CDO, I take the risk but no legal ownership of underlying asset, but in cash CDO, I have legal ownership, so in all, which one has more risk, cash cdo or synthetic cdo? also in synthetic cdo, I can sell CDS, which gives me premium and better off
(2)I use equity tranch to reduce mezzanine tranch risk, does it mean both extension risk and contraction risk of mezzanine tranch is reduced after introducing equity tranch?
can I say equity tranch provide credit protection of mezzanine tranch, because eqity tranche get principal and interest payment after mezzanine tranch?
(3) in my risky portfolio, my analyst forcast alpha is 20%, can I adjusted the alpha by multiplying 20% with R square(correlation between relized alpha and forcast alpha)
(4). in factor potfolio, is beta=1? because other factor sensitive are all zero. in tracking portfolio, is beta=1? because it is same as index risk. so can I say the risk of tracking portfolio is same risk as factor portfolio?
(5)in maket neutral strategy, I long IBM and short microsoft, is the beta of maket neutral portfolio zero?
(6) my portfolio VaR is very high, does it mean the credit risk of my CDO portfolio is very high? VaR measures left tail risk, does it also meausre right tail, which means I have very high alpha return?
Thanks

edgeon

(5) Also note the difference between beta-neutral and delta-neutral for market-neutral strategies.
(6) There is no such thing as vanilla “VaR”. VaR must defined over a time frame and event likelihood. For example, a 1-day 1% VAR would be say $10MM. This means, 1% of days you can expect to lose at least $10MM, maybe more.
Contrast this with 1-day 5% VAR, which would be lower, say $5MM. Again, this just says that on 5% of days you can expect to lose at least $5MM, maybe more.
5-day 1% VAR could be higher or lower (than 1 / 1%), depending on your return distribution.

bchadwick

Re Q6
My understanding is that VAR is simply the probability of the maximum drawdown occuring

noel

alternatively, we can keep touch through: francisgycfa@gmail.com, Genius, don’t be shy

mfleming1983

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johnnyBuz

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bdavi77962

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luckygiftvn

Where are you currently located francisgy?

mkytz15

3) Yes.
4) In a factor portfolio, there is only one Factor with Unit sensitivity to that factor. So, yes, In factor portfolio Beta for that factor is 1.
In a tracking portfolio, there are many factors. So, asking if beta for the portfolio is 1, is not a valid question. Beta is the sensitivity to a given factor. So, it is like asking: is sensitivity of a portfolio 1? I will then ask you: sensitivity of the portfolio to what?
For a multifactor model, we need to come out of the mould of CAPM model, where beta is always the sensitivity to Market Risk. In a multifactor model, there are many other priced risks, including market risk, thus, many sensitivities for each of those factors.
5) Yes, a market neutral portfolio will have sensitivity to market risk (beta) as 0. In your example, you will have to long some amount of money in IBM and short some amount of money in microsoft to get a market neutral strategy. These 2 amounts would not necessarily be same, if that is what you implied.

maxmeomeo

my dear friends, can I have your opinion? thanks