Conditional Value at Risk (CVaR)

Conditional Value at Risk (CVaR) is a risk assessment measure used to evaluate the potential losses of an investment or portfolio in extreme cases. Specifically, it estimates the average loss that could occur beyond a specified threshold, typically when losses exceed a certain percentage (like the worst 5%). In simpler terms, CVaR helps investors understand not just the worst-case scenario, but also how severe those losses might be, providing a clearer picture of financial risk during tough times. This is particularly useful for managing portfolios in volatile markets.