| Component |
Description |
| Portfolio Value |
The total value of the investment portfolio. |
| Expected Return |
The expected return on the portfolio over a specific period. |
| Standard Deviation |
A measure of the volatility or risk of the portfolio’s returns. |
| Confidence Level |
The confidence level at which the Value At Risk is calculated, typically 95% or 99%. |
| Value At Risk (VAR) |
The maximum potential loss in the portfolio’s value over a specified period, given the confidence level. |
| Formula |
VAR = Portfolio Value × Standard Deviation × Z-Score, where Z-Score corresponds to the confidence level. |
| Purpose |
Used to measure and manage the risk of potential losses in an investment portfolio. |
