Scenario analysis is a financial forecasting tool used to predict the performance of an asset, security, bond, currency or portfolio under different economic conditions. It helps investors understand how different market events could affect their investments and plan for potential risks. Through scenario analysis, investors can create multiple “what if” scenarios to identify potential opportunities as well as possible risks. The idea is to determine the most likely outcome based on all the scenarios and profits strategically from that knowledge. By studying these scenarios, investors can better prepare their portfolios for any future market changes.