Stress testing applies historical market crashes to your current portfolio. We model how each holding would have responded based on its beta and sector characteristics.
Formula
Stressed Value = Market Value × (1 + Market Impact × β × Sector Multiplier)Methodology
Historical stress testing answers the question: "What would have happened to my portfolio during past market crises?"
The methodology uses a CAPM-style approach with sector adjustments:
1. Start with the market impact (e.g., -57% for 2008 crisis) 2. Adjust by the stock's beta (higher beta = amplified move) 3. Apply sector-specific multipliers based on historical sector performance
For example, during the 2008 crisis: - Financial stocks: 1.5× multiplier (banks hit hardest) - Healthcare stocks: 0.6× multiplier (defensive sector) - Technology stocks: 1.1× multiplier (slightly worse than market)
The scenarios are based on S&P 500 peak-to-trough declines, providing a realistic view of downside risk. The "worst case" shown is the most severe scenario for your specific portfolio, accounting for your sector allocation.
Data Source
Five historical scenarios: 2008 Financial Crisis (-57%), Dot-Com Crash (-49%), COVID Crash (-34%), 2022 Rate Shock (-25%), and a typical Moderate Recession (-20%).
Reference
Multiple Sources (2023). Historical Market Data. S&P 500 historical price data and sector performance records
Limitations
Past market behavior may not repeat. Sector correlations and performance patterns may differ in future crises. This is for educational purposes only.
Related Metrics
Stress Test Your Portfolio
See how your portfolio would perform in historical crisis scenarios.
For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.