Portfolio Risk & Return

Expected Shortfall (CVaR)

The average loss in the bad years that Value at Risk leaves out. Where a 95% VaR marks the line that only the worst 5% of outcomes cross, expected shortfall — also called conditional value at risk, or CVaR — averages those worst 5% together, so it is always at least as large a loss as the VaR at the same level. It answers “when things go badly, how badly on average?” rather than only “where does bad begin?”, which is why many risk managers and bank regulators now prefer it. It shares VaR’s weakness of resting on an assumption about the shape of returns, so it reads best as a scale of exposure rather than a precise forecast.

Educational information, not investment advice. See it applied across the screener →