Value at risk (VAR)
Calculator

The Value at Risk (VaR) Calculator can help you estimate how much of your investment you might lose at given normal market conditions, over a given period based on the probability of past performance. Stay on top of your exposure in five easy steps with our Value At Risk calculator.

Enter a notional amount
Assign an asset volatility percentage
Choose a number of days
Elect a confidence level
Click Calculate!

What Is The Value At Risk Calculator?

Value at Risk (VAR) is a metric designed to quantify the maximum loss for an investment or trade over time. It is based on the variance-covariance method, also known as the parametric method.

Using normal distribution, periodic volatility, and a standard periodicity, the VAR furnishes the trader with a “disaster scenario” for an investment portfolio.

How To Calculate Value At Risk (VAR)

Calculating VAR by hand is cumbersome and time-consuming. Our VAR calculator scrutinizes the formula below in seconds.

Given portfolio value

Account base currency denomination (currency units)

Expected volatility

Standard Deviation: Includes the variance-covariance method assuming a normal distribution in expected return

Confidence level

Also called ‘periodic volatility’.

Time horizon (days)

The square root of the given period over how many trading days are there in a year

Value at risk

Future value of risk, informational purposes, estimate

* Results are theoretical, based on the normal distribution of assumed variables. Past performance is not indicative of future results.

The VAR Calculator is user-friendly. Simply enter the inputs, click Calculate and view how much of your portfolio value is at risk. A quick primer on the VAR parameters:

Portfolio Value: The amount of currency being invested
Expected Volatility: Market fluctuations in terms of standard deviation
Confidence Interval: Variance of expectations (between 90.0% and 99.0%)
Period: Investment horizon denominated in days

FAQs

The Value at Risk concept can be difficult to grasp.
Here are some of the most frequently asked questions regarding the VaR calculation.

What Is Normal Distribution?

The Oxford Dictionary defines normal distribution as “a function that represents the distribution of many random variables as a bell-shaped graph.” In VAR, it represents the probability distribution of incremental value loss. By doing so, a maximum negative expected return is derived.

Can The VAR Calculator Project Future Portfolio Value?

No. VAR is used to estimate the worst-case scenario for investment under normal market conditions. It does not project an investment's growth or future value.

Is Value At Risk Reliable?

Yes. Many market professionals incorporate VAR into their financial risk analysis. However, the parameters of the calculation are often based on either historical data or a historical method of defining volatility and confidence intervals. As with any tool, user discretion is advised.

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