Risk Identification The primary risks associated with a medium-term trend-following position in S&P 500 futures include market risk from adverse trend reversals, volatility risk during regime shifts, and gap risk around macroeconomic announcements. Correlation risk is present if the broader portfolio is equity-heavy, increasing exposure during equity drawdowns. Liquidity risk is low under normal conditions but can rise sharply during stress events. Risk Measurement Risk should be measured using maximum drawdown analysis, rolling volatility, and stress scenarios based on historical equity sell-offs. Value-at-Risk (VaR) and expected shortfall can help quantify tail exposure. Exposure limits should be assessed relative to total portfolio volatility rather than notional position size. Portfolio Impact A 5% exposure to S&P 500 futures increases directional equity beta within a diversified equity portfolio. While the position may enhance returns during sustained uptrends, it also increases downside sensitivity during market-wide corrections. Correlation analysis should confirm whether the strategy meaningfully diversifies returns or amplifies existing risks. Constraints & Controls Position sizing should be capped based on portfolio-level volatility contribution rather than fixed capital allocation. Predefined exit rules tied to trend breaks, volatility spikes, or drawdown thresholds should be enforced. Risk limits should prevent cumulative equity exposure from exceeding acceptable portfolio tolerances. Execution & Monitoring Execution should prioritize liquidity windows to minimize slippage, using limit or algorithmic orders if necessary. Ongoing monitoring should focus on trend integrity, volatility expansion, and macro catalysts that could invalidate the trend-following thesis. Failure Scenarios The strategy may fail during range-bound or highly volatile markets where trends reverse frequently, leading to whipsaw losses. Sudden macro shocks or policy-driven market moves could also cause rapid adverse price movements before exits are triggered. Decision Review The position is acceptable only if portfolio-level risk remains within predefined limits and trend conditions are clearly established. Execution should proceed incrementally, with continuous monitoring and readiness to exit if market structure deteriorates.