VaR 95

Value at Risk (VaR) Explained

Q: What's the difference between 95% and 99% VaR?

99% VaR represents a more extreme loss threshold — the amount you'd expect not to exceed on 99% of days. It's typically 1.4× to 1.8× the 95% VaR for normally distributed returns. Portivex uses 95% because it's more statistically stable with shorter return histories and more commonly used in retail risk management.

Q: Does VaR tell me the worst-case loss?

No — this is a common misconception. VaR tells you the threshold loss at a given confidence level. Losses beyond that threshold (the tail) can be much larger. For worst-case scenarios, Maximum Drawdown gives you a better picture of how bad actual losses have been in your portfolio's history.

Q: Why does my VaR change even when I haven't changed my holdings?

VaR is recalculated daily using your rolling return history. As new trading days are added and old ones drop out of the window, the standard deviation changes — so VaR moves even with static holdings. Periods of high market volatility will spike VaR; calm markets will lower it.

The maximum daily loss you should expect 95% of the time

Formula

μ − 1.645σ (parametric, 95% confidence)

where μ is mean daily return, σ is daily return standard deviation, and 1.645 is the z-score for the 95th percentile of the normal distribution.

What is the Value at Risk (VaR)?

Value at Risk (VaR) answers a simple question: on a typical bad day, how much could I lose? Specifically, 95% VaR is the loss threshold you'd expect not to exceed on 95% of trading days. If your 95% VaR is −2.1%, there's roughly a 1-in-20 chance of losing more than 2.1% in a single day. VaR is a standard risk metric used by banks, hedge funds, and institutional investors to size positions and set risk limits.

How to interpret it

VaR is expressed as a percentage loss (negative number). A 95% VaR of −3% is more concerning than −1% because it implies larger expected tail losses. The number should be read in context of your portfolio size — a −2% VaR on a £50,000 portfolio means a typical bad day could cost £1,000. VaR does not tell you how bad losses get in the extreme 5% — that's where Maximum Drawdown becomes important.

What counts as a good VaR 95?

0% to −1%Low — very defensive portfolio; typically bonds or cash-heavy

−1% to −2%Moderate — typical of a diversified balanced portfolio

−2% to −3%Elevated — concentrated equity exposure or volatile assets

< −3%High — significant single-day loss potential; consider diversification

What affects your VaR 95?

Volatility — higher σ directly increases VaR
Concentration — single-stock exposure amplifies tail risk
Correlation — low-correlation holdings reduce portfolio VaR below the weighted average
Leverage — magnifies both mean returns and standard deviation
Fat tails — parametric VaR assumes normality; real returns often have heavier tails

How Portivex uses VaR 95

Portivex uses parametric (variance-covariance) VaR at the 95% confidence level. This is calculated daily using your full return history. The limitation of parametric VaR — it assumes normally distributed returns — is disclosed in the confidence strip on the metrics page. VaR is displayed as a daily figure so it's directly comparable across different portfolio sizes.

See my VaR 95 →

Frequently asked questions

What's the difference between 95% and 99% VaR?

99% VaR represents a more extreme loss threshold — the amount you'd expect not to exceed on 99% of days. It's typically 1.4× to 1.8× the 95% VaR for normally distributed returns. Portivex uses 95% because it's more statistically stable with shorter return histories and more commonly used in retail risk management.

Does VaR tell me the worst-case loss?

No — this is a common misconception. VaR tells you the threshold loss at a given confidence level. Losses beyond that threshold (the tail) can be much larger. For worst-case scenarios, Maximum Drawdown gives you a better picture of how bad actual losses have been in your portfolio's history.

Why does my VaR change even when I haven't changed my holdings?

VaR is recalculated daily using your rolling return history. As new trading days are added and old ones drop out of the window, the standard deviation changes — so VaR moves even with static holdings. Periods of high market volatility will spike VaR; calm markets will lower it.

Related metrics

See your Value at Risk (VaR) in real time.

Add your holdings and Portivex calculates your VaR 95 — with confidence context and plain-English interpretation tailored to your investor profile.

Analyse my portfolio →

Free during early access · No card required