What are portfolio risk management strategies used for?

Portfolio risk management strategies are primarily used to identify, assess, and mitigate risks within investment portfolios. These strategies are essential for maintaining a balance between risk and return, ensuring that the portfolio aligns with the investor's risk tolerance and investment objectives.

Effective risk management involves understanding potential risks that could impact the portfolio's performance, including market volatility, credit risk, interest rate fluctuations, and liquidity issues. By systematically evaluating these risks, portfolio managers can develop strategies to minimize potential losses while still pursuing growth. Techniques may include diversification across asset classes or sectors, using derivatives for hedging, and setting risk limits for individual investments.

While increasing the size of investments, seeking the highest possible returns, or promoting high-risk investments may be goals of some investors, they do not specifically address the core purpose of portfolio risk management, which is to ensure that risks are managed appropriately to safeguard against potential downturns in performance.