Value at Risk

Value at Risk (VaR) is a financial metric that estimates the potential loss an investment portfolio could face over a specific time period, given normal market conditions, with a certain confidence level. For example, if a portfolio has a 1-day VaR of $1 million at a 95% confidence level, it suggests that there’s a 95% chance the portfolio will not lose more than $1 million in one day. VaR helps investors understand risk and make informed decisions about how to manage and mitigate potential losses.