Portfolio Risk & Return

Value at Risk (VaR)

A threshold loss that should be crossed only rarely. A one-year 95% Value at Risk of −12% means that in 95 years out of 100 the portfolio’s return is expected to be no worse than −12%; in the other 5 it could be worse. The 99% figure sets the bar at 99 years in 100, so it is always the larger loss. VaR became a standard because it turns volatility into a single answer to the question “how bad could a bad year be?” The catch is in the 5%: VaR says nothing about how far past the threshold a truly bad year can go, and the usual way of computing it assumes bell-shaped returns, which understates real market crashes. Expected shortfall (CVaR) is the companion figure that looks past the line.

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