Stress testing quantifies the effects of extreme market events from the past (such as Black Friday, Lehman bankruptcy etc) in terms of their impacts on stock indices, fx rates, bond yields, interest rates etc and applies them to the portfolio as it stands today, capturing the effect in terms of % return and/or P&L. In addition to analysis based on actual historical events, stress tests can also attempt to estimate the impact of hypothetical adverse events on the portfolio (sovereign default, environmental- and climate-related events, unexpected changes in fx rates etc).