CVaR (Conditional Value at Risk)

Conditional Value at Risk (CVaR) is a financial measure that estimates the average loss an investor might face in the worst-case scenarios beyond a certain confidence level. For example, if we look at the worst 5% of possible losses, CVaR calculates the average loss within that extreme tail. It provides a clearer picture of potential severe losses than traditional risk measures, helping investors better understand and prepare for rare but impactful events. Essentially, CVaR focuses on what could happen in the most adverse situations, emphasizing risk management and resilience.