Analysts at rating agency Fitch Ratings warned recently against relying solely on historical credit default or ratings data to decipher the level of risk involved in a particular CDO tranche. Instead, using market-based methodologies provides a more accurate picture of the amount of risk inherent in a prospective investment.

"Basically we observed that the market-based approaches are superior to the other options in assessing asset correlations in a consistent way across different industries and different regions," said Ahmet Kocagil, a managing director at Fitch, on a conference call last week.

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