How to use the portfolio stress test calculator
- List your holdings with their current market value. Group small positions into funds or asset classes if you like; a handful of rows is enough.
- Enter each holding’s sensitivities.
- Equity beta: how much the holding moves for each 1% move in the stock market. About 1 for a broad US stock fund, often a little higher for international or small-cap funds, 0 for bonds and cash.
- Duration: the effective duration from a bond fund’s factsheet, in years. It measures the price change for a change in interest rates. Use 0 for stocks and cash.
- Spread duration: sensitivity to credit spreads. For corporate bond funds it is close to the duration; for Treasuries it is 0.
- Enter hedges or short positions as negative values.
- Pick a scenario. The three presets are illustrative hypothetical shocks loosely inspired by past crises. Custom lets you set the stock move, the rate change and the spread change yourself.
How the stress loss is calculated
Each holding’s return in the scenario is a first-order sum of three effects:
Gain or lossi = Valuei × ReturniΔS is the stock-market move, Δy the change in interest rates and Δs the change in credit spreads (both in decimal: 100 basis points = 0.01). βi is the equity beta, Di the duration and SDi the spread duration of holding i. A long holding's loss is capped at its full value.
The portfolio result is the sum over all holdings. Because the model is linear, the total splits cleanly into a stock part, a rate part and a credit part, which the chart and the results show separately.
A worked example
A fictional $1,000,000 portfolio holds stock funds, a REIT fund, a Treasury bond fund, a corporate bond fund and cash. Under the 2008-style crisis preset, stocks fall 45%, rates drop 150 basis points and credit spreads widen 350 basis points.
The stock funds take the brunt: -$180,000 for the US fund and -$74,250 for the international fund. The Treasury fund, with a 6-year duration, gains $18,000 as yields fall. The corporate bond fund gains from lower rates too, but the wider spreads cost it more, for a net -$21,000.
In total the portfolio loses $284,250, or 28.4% of its value, leaving $715,750. By factor: the stock move contributes -$281,250, falling rates $33,750 and wider credit spreads -$36,750.
The preset scenarios
The presets are hypothetical. They borrow the shape of three well-known episodes, not their exact numbers, and each real episode played out differently across markets and over weeks or months.
| Scenario | Stocks | Rates | Credit spreads | This portfolio |
|---|---|---|---|---|
| 2008-style crisis | −45% | −150 bp | +350 bp | -$284,250 |
| 2020-style crash | −30% | −100 bp | +200 bp | -$186,000 |
| 2022-style rate shock | −20% | +250 bp | +100 bp | -$191,750 |
| Custom (default) | -15% | 100 bp | 75 bp | -$124,125 |
The rate-shock scenario has the smallest stock move of the three presets but costs slightly more than the 2020-style crash, because the bond funds lose money alongside the stocks instead of cushioning them.
Bonds do not always hedge stocks
A traditional stock-and-bond portfolio relies on Treasuries rising when stocks fall. That works when a crisis pushes investors toward safety and central banks cut rates. It fails when the shock itself is rising rates or inflation, because stocks and bonds then fall together.
Lengthening the Treasury fund’s duration from 6 to 17 years, as with a long-term Treasury fund, shows the trade-off:
| Treasury fund duration | 2008-style crisis | 2022-style rate shock |
|---|---|---|
| 6 years (the example) | -$284,250 | -$191,750 |
| 17 years | -$251,250 | -$246,750 |
Long Treasuries soften the crash and deepen the rate shock. A stress test cannot tell you which scenario is coming; it shows how much each one would cost so that you can choose a mix whose worst case you can accept.
Building a useful scenario
- Combine factors. Real crises move several things at once. A stock crash with no rate or credit move understates the damage to a balanced portfolio’s corporate bonds and overstates the help from Treasuries, or the other way round.
- Set the size from your own judgment, not from a single date. Peak-to-trough moves depend heavily on the start and end dates chosen; round, deliberately severe numbers are easier to reason about.
- Reverse the question. Ask what stock move would cost you a loss you could not tolerate, then try custom scenarios until the total reaches that figure. That tells you how much room the portfolio has.
- Check each holding’s role. The hardest-hit holding here is the US stock index fund, simply because it is the largest stock position. A small, high-beta holding can look scarier per dollar while mattering less to the total.
What this calculator does not include
- Non-linear effects. Beta and duration are first-order measures. Bond convexity, options, leveraged funds and assets that gap down behave differently in large moves.
- Changing correlations and betas. In crises, betas of risky assets often rise and diversification shrinks; the model holds sensitivities fixed.
- Other risks: currency moves on foreign holdings, commodity prices, liquidity (being unable to sell at the quoted price) and single-company events.
- Time and path. The shock is applied instantly. Losses spread over months, rebalancing, withdrawals and recovery are not modeled.
- Probability. A stress test says nothing about how likely a loss is. For that, combine it with Value at Risk or a Monte Carlo simulation.