Portfolio Risk & Return

Tail Risk

The risk of rare, extreme moves — the far ends, or tails, of the range of possible returns. Real markets produce big crashes and spikes far more often than a neat bell curve predicts (statisticians call this having fat tails), so measures built on ordinary volatility, including the usual way of computing Value at Risk, tend to understate how bad a bad day or year can be. Expected shortfall, maximum drawdown and stress tests are the tools that look into the tails. Tail risk is also where hidden concentration shows itself: holdings that seemed unrelated in calm markets can fall together in a panic.

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