How can I quantify financial risk in my investment portfolio?

How can I quantify financial risk in my investment portfolio?

To quantify financial risk, you can use metrics like Value at Risk (VaR), standard deviation, and beta. Would you like to know more about any specific metric?

What is Value at Risk (VaR)?

Value at Risk (VaR) estimates the potential loss in value of an asset or portfolio over a defined period for a given confidence interval. For example, a 1-day VaR of $1,000 at 95% confidence means there's a 5% chance of losing more than $1,000 in one day.

How do I calculate VaR for my portfolio?

You can calculate VaR using historical simulation, variance-covariance, or Monte Carlo simulation methods. Would you like a detailed explanation of one of these methods?

Yes, please explain the historical simulation method.

The historical simulation method involves using past returns to simulate potential future losses. You take historical price data, calculate daily returns, and then determine the VaR by finding the percentile of losses at your chosen confidence level.