Value at Risk (VaR)

Value-at-Risk (VaR) is a financial metric used to estimate the potential loss in value of an investment or portfolio over a specified time period, given normal market conditions. It answers the question: “What is the worst loss I could expect with a certain confidence level?” For example, a 1-day VaR of $1,000 at a 95% confidence level means that in 95 out of 100 days, the investment is expected to lose no more than $1,000. VaR helps investors gauge risk and make informed decisions about managing their portfolios and potential losses.