Stress tests correlation matrices under extreme scenarios. Models correlation breakdown (crisis), decorrelation (relationships weaken), or correlation sign flips. Critical for understanding portfolio behavior during market dislocations when historical correlations fail. Used in FRTB, CCAR stress testing, and risk scenario analysis.
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Baseline correlation matrix (must be symmetric positive semi-definite)
[[1, 0.5, 0.3], [0.5, 1, 0.4], [0.3, 0.4, 1]]Type of correlation stress scenario
crisis, decorrelation, sign_flip "crisis"