is that returns from different assets are highly unlikely to be perfectly correlated, and in fact the correlation may sometimes be negative. In this way, market risk particularly, and other financial risks such as inflation risk, can at least partially be moderated by forms of diversification. A key issue in diversification, however, is that the (assumed) relationships are (implicitly) forward looking. As observed in the late-2000s recession historic relationships can break down, resulting in losses to market participants believing that diversification would provide sufficient protection (in that market, including funds that had been explicitly set up to avoid being affected in this way). A related issue is that diversification has costs: as correlations are not constant it may be necessary to regularly rebalance the portfolio, incurring transaction costs, negatively impacting investment performance; and as the fund manager diversifies, so this problem compounds (and a large fund may also exert market impact). See . Addressing these issues, more sophisticated approaches have been developed in recent times, both to defining risk, and to the optimization itself - (tail) risk parity, as an example, focuses on allocation of risk, rather than allocation of capital. Relatedly, modern financial risk modeling employs a variety of techniques — including value at risk, historical simulation, stress tests, and extreme value theory — to analyze the portfolio and to forecast the likely losses incurred for a variety of risks and scenarios. In parallel, managers - active and passive - also seek to understand any tracking error, i.e. underperformance vs a "benchmark", and here often use attribution analysis preemptively so as to diagnose the source early, and to take corrective action (and similarly use style analysis to address style drift). Fund Managers typically rely on sophisticated software here (as do banks, above); widely used platforms are provided by BlackRock, Eikon, Finastra, Murex, Numerix, MPI and Morningstar. Additional to these (improved) diversification and optimization measures, and given these analytics, Fund Managers will apply specific risk hedging techniques as appropriate; these may relate to the portfolio as a whole or to individual stocks. Fund managers may engage in portfolio insurance, a hedging strategy developed to limit the losses an investor might face from a declining index of stocks without having to sell the stocks themselves. This strategy involves selling Stock market index futures during periods of price declines. The proceeds from the sale of the futures help to offset paper losses