Value at Risk
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VaR (%)
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Worst Case (at confidence)
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When Should You Use This?
Use VaR to understand the worst-case scenario for your portfolio over a specific time period. Banks and hedge funds are required to calculate VaR daily. It helps you decide if your portfolio risk matches your risk tolerance.
How It Works
1
Enter Portfolio Value
Input the total market value of your portfolio or the position you want to analyze.
2
Set Volatility
Enter the annualized volatility (standard deviation of returns). The S&P 500 averages about 15-20%.
3
Read the Result
VaR tells you: with X% confidence, you won't lose more than $Y over Z days. The remaining 5% (or 1%) of the time, losses could be worse.
Frequently Asked Questions
VaR answers the question: 'What is the maximum I could lose over a given period, with a given level of confidence?' A 95% 1-day VaR of $5,000 means there's only a 5% chance you'll lose more than $5,000 in one day.
95% is the most common for retail investors. Banks typically use 99%. Higher confidence = larger VaR number = more conservative estimate.
VaR doesn't tell you how bad the loss could be beyond the confidence level (tail risk). It assumes normal distribution of returns, which underestimates extreme events (black swans).
Use your broker's analytics, or calculate the standard deviation of your portfolio's daily returns over the past year, then annualize by multiplying by sqrt(252).
CVaR (or Expected Shortfall) measures the average loss in the worst cases beyond VaR. It captures tail risk that VaR misses and is considered a more complete risk measure.