Did You Know? | How to view Value at Risk (VaR) statistics

Value at Risk (VaR) statistics are extremely useful for understanding: how exposed your portfolio or position is, how vulnerable it is to downside risk, and the extent of your potential losses under normal conditions.

Arbor can show VaR statistics for both the entire Portfolio and for each individual Product.

Value at Risk – what it is:

One-day VaR

  • The amount your position or fund could lose on a very bad day, under normal conditions – the worst case scenario for any given day.

20-day VaR

  • The amount your position or fund could lose in a very bad month, given normal conditions.

Confidence Level

  • Typically 95% or 99%

Example: a One-day Portfolio VaR value of $154,687 at a 99% Confidence Interval.

  • One day out of 100, given normal conditions, you will lose $154,687 or more.
  • On every other 99 days out of 100, you will lose less than this amount.

VaR for current date -1 is reported.

How it is calculated:

VaR for each Product:

  • We look back at each product’s prices for the past 1 year. We use these historical prices to calculate: average daily returns, market exposure, and each product’s price volatility. We then use these figures to calculate the VaR value.

VaR for overall Portfolio:

  • The Portfolio VaR value is lower than the summation of all Product VaR values, because not all products will perform their worst on the same day under normal conditions.
  • It is instead calculated by: computing an historical variance-covariance matrix for all assets, and using this to forecast future covariances; combining this matrix with each asset’s exposure to linear risk factors; then  calculating an overall Portfolio VaR value.

Where you can see this:

VaR and Stress-Test VaR reports are available in the Reports section.

However, these reports are not automatically available. Firstly, you need to ensure that all prices for each product in the fund are included for the past year. Then, Arbor needs to set these reports up.

More information:

Check out our page on our Family Office Risk Management System, which features our Value at Risk capabilities and further risk features.

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