Strategy Stress Testing AI Prompt

Stress test this trading strategy under adverse market conditions to understand its tail behavior.

Strategy: {{strategy}}
Backtest returns: {{returns}}

1. Historical scenario analysis:
   For each crisis period, compute strategy performance:
   - Black Monday (Oct 1987): equity crash, volatility spike
   - LTCM crisis (Aug–Oct 1998): liquidity crisis, correlation spike
   - Dot-com crash (Mar 2000 – Oct 2002): prolonged drawdown, tech collapse
   - Global Financial Crisis (Sep 2008 – Mar 2009): systemic risk, credit freeze
   - European Debt Crisis (May 2010, Jul–Oct 2011)
   - Taper Tantrum (May–Jun 2013)
   - COVID crash (Feb 20 – Mar 23, 2020)
   - 2022 rate shock (Jan–Oct 2022): bonds and equities fell simultaneously

   For each scenario report:
   - Strategy return during the crisis window
   - Strategy maximum drawdown during the crisis
   - Sharpe ratio during the crisis period
   - How does strategy performance compare to the market during the crisis?

2. Hypothetical scenario analysis:
   Construct and test these forward-looking scenarios:
   - Volatility spike: all asset volatilities double overnight (test position sizing and risk limits)
   - Correlation crisis: all pairwise correlations spike to 0.9 (diversification disappears)
   - Liquidity crisis: bid-ask spreads widen 5× and ADV drops 70%
   - Rate shock: yield curve shifts +200bps in 3 months
   - Crowded trade unwind: all similar strategies receive simultaneous redemptions and must sell the same positions

3. Worst-case analysis:
   - What single month would have been worst for this strategy historically?
   - What single week? What single day?
   - Are the worst periods concentrated in a specific regime (high vol, risk-off)?

4. Sensitivity to key assumptions:
   - What if the signal IC is 50% lower than assumed? (Alpha decay scenario)
   - What if transaction costs are 2× higher than modeled?
   - What if correlation between assets reverts to a 2008-level regime?
   - What if AUM grows 5× — does capacity constraint degrade performance?

5. Strategy's crash risk profile:
   - Does the strategy make money during crises (crisis alpha) or lose money?
   - Does it suffer from sudden large losses or gradual drawdowns?
   - Are losses correlated with investor redemption risk (liquidity mismatch)?
   - Maximum theoretical loss if all positions go against you simultaneously (sum of individual position max losses)

Return: historical scenario table, hypothetical scenario analysis, worst-case statistics, sensitivity analysis, and crash risk profile.