PFMP · Question #610
Recognizing that different components can have different types of risks, you decide to see how each risk affects the components. For example, assume you have identified a structural risk as overly amb
The correct answer is B. Common causes. The correct answer is B - Common causes. When you map individual risks across multiple portfolio components and discover that a single risk type (e.g., overly ambitious plans as a structural risk) affects several components simultaneously, you have identified a common cause - a s
Question
Recognizing that different components can have different types of risks, you decide to see how each risk affects the components. For example, assume you have identified a structural risk as overly ambitious plans and determine this risk affects three of the top five risks in your portfolio. You also have identified an environmental risk, in terms of whether the component will promote the organization's vision, which affects two components. Each component then has some other types of risks that affect it. From such an analysis you can see:
Options
- AGaps in the portfolio
- BCommon causes
- COverall portfolio risk impact
- DRebalancing needs
How the community answered
(58 responses)- A2% (1)
- B83% (48)
- C10% (6)
- D5% (3)
Explanation
The correct answer is B - Common causes. When you map individual risks across multiple portfolio components and discover that a single risk type (e.g., overly ambitious plans as a structural risk) affects several components simultaneously, you have identified a common cause - a shared root factor that drives multiple distinct risks. This is a cause-and-effect insight rather than a gap analysis, rebalancing decision, or overall impact score. Identifying common causes is valuable because it allows the portfolio manager to address one underlying issue and reduce risk exposure across multiple components at once, rather than treating each affected component's risk independently.
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