Calculator
Value at Risk (VaR) Calculator
Value at Risk (VaR) Calculator
Value at Risk (95% Confidence)
$1,522.54
90% VaR
$1,179.25
99% VaR
$2,166.4
Risk Analysis
A 95% confidence VaR of $1,522.54 over 1 trading day means that on roughly 1 day in 20 (about 12 days a year), you can expect to lose at least that much. On the worst days of a typical year, actual losses often exceed the 99% VaR — which is why professionals pair VaR with stress tests and position limits.
VaR assumes returns follow a normal distribution. Real markets have fat tails — extreme losses occur more often than the model predicts. VaR says nothing about the size of losses beyond the confidence threshold.
Value at Risk: Putting a Number on Your Worst Usual Day
Value at Risk answers the question every investor dreads but rarely quantifies: how much could I lose on a bad day? Expressed as a dollar figure at a given confidence level, VaR says that on 95% of days the portfolio's loss will not exceed that amount — which also means on roughly one day in twenty, it will. Banks, hedge funds, and regulators have used the measure since the 1990s, and the same math now runs inside free tools for retail investors who want to size risk before it sizes them. For US investors the practical applications are immediate. A 95% daily VaR of $1,500 on a $100,000 portfolio tells you whether your stomach and your liquidity can survive a routine drawdown; a one-month VaR on a concentrated stock position tells you whether a single name is dominating your risk budget. VaR also forces honesty about volatility — the difference between a 9% volatility bond fund and a 28% single stock shows up as a dramatically different potential loss at the same portfolio size. The danger of VaR is complacency: it describes the usual bad days, not the extreme ones, which is why every serious risk framework pairs it with stress testing. This calculator gives you the parametric version so you can price normal market risk before deciding position sizes.
Behind the Formula: Volatility, Time, and the Z-Score
The parametric VaR formula is VaR = Portfolio Value x (z x sigma_horizon - mu_horizon), where sigma is volatility and mu is expected drift. Annual volatility is first converted to daily volatility by dividing by the square root of 252 trading days — volatility scales with the square root of time because daily moves are approximately independent. For multi-day horizons, daily volatility is then scaled up by the square root of the holding period. The z-score is the multiplier that encodes confidence: 1.28 for 90%, 1.64 for 95%, and 2.33 for 99%. Each says how many standard deviations into the loss tail the threshold sits. Expected return over the horizon is subtracted because a positive drift offsets part of the volatility-driven loss; over one day the drift is tiny, but over 21 trading days it visibly shrinks the VaR. The whole model assumes returns are normally distributed, which understates the probability of extreme losses — real markets have fat tails. That is precisely why this tool pairs the normal-model figure with commentary about tail risk and why a 99% VaR should be treated as a floor on the worst days, not a ceiling.
Expert Insights
VaR Is the Beginning of Risk Management, Not the End
The famous failure mode: in calm markets VaR looks reassuring, then a fat-tail event dwarfs it. The 2008 crisis and March 2020 both produced multi-VaR events inside days. The discipline VaR imposes — measuring risk, setting position limits against it, and checking it regularly — is exactly right. The failure is believing the number when the distribution assumption breaks. Use VaR to size normal risk, and stress-test scenarios to bound the extreme ones.
Match the Horizon to Your Decision
A one-day VaR matters if you might need to sell tomorrow; a one-month VaR matters if you are judging a contribution you cannot touch. Day traders run daily VaR; retirement savers should run monthly or quarterly. The tool's holding-period slider exists because the same portfolio has a very different risk profile at different horizons — volatility compounds with the square root of time, so a month-long VaR is about 4.6x the daily number.
Use VaR to Price Position Concentration
Individual stocks often carry 25-40% volatility; a broad index fund carries 15%. A $10,000 single-stock position contributes more to portfolio VaR than a $25,000 index position. Before adding a concentrated holding, compute its standalone VaR and ask whether that loss on the worst usual day is acceptable. This converts the abstract anxiety of 'too much in one name' into a concrete dollar test.
Actionable Tips
- 1
Run Your Portfolio's VaR Against Your Cash Buffer
Compare the 95% monthly VaR of your equity holdings against your emergency fund. If the VaR exceeds your buffer, a single bad month could force you to sell into weakness to cover expenses. The fix is either more cash or less volatility — the number tells you which gap to close.
- 2
Stress the Volatility Input
Your portfolio's current volatility may understate what a crisis does. Rerun the tool at 1.5x your volatility input. If the resulting VaR is a number you cannot stomach, your present sizing is not crisis-proof regardless of what today's calmer figure says.
- 3
Set a VaR Budget per Holding
Cap each individual position's daily VaR contribution at a fixed dollar amount, such as 0.5% of total portfolio value. When a winner grows past the cap, trim it. This mechanical rule keeps single-stock risk from quietly accumulating through inattention — the most common way retail portfolios become concentrated.
Real-World Examples
Marcus Sizes His Tech Concentration
Marcus, an engineer in Seattle, had $80,000 in employer stock inside a $300,000 portfolio. Running the VaR tool at the stock's 35% volatility showed a 95% monthly VaR of about $12,500 for the single position — more than his emergency fund. He sold down to $40,000, diversifying into index funds, and brought the position's monthly VaR down to roughly $6,200.
Dana Learns Her Bond Fund Wasn't Risk-Free
Dana, a 61-year-old in Florida, parked her retirement rollover in a long-duration bond fund, expecting stability. At 9% volatility, the tool showed a 95% one-month VaR of roughly $9,200 on a $250,000 balance — real money in the same month that rate volatility spiked. She shifted half into shorter-duration holdings, cutting the fund's contribution to portfolio VaR roughly in half.
The Chen Family Sets a Rule for Crypto
The Chens allowed themselves a 5% crypto sleeve in their portfolio, but at 70% volatility the tool showed that slice alone carried a 95% monthly VaR of nearly $4,900 on just $7,500 of holdings — roughly fifteen times the VaR of the same dollars in an index fund. They capped the position at 2.5%, a decision they could defend with a number rather than a feeling.
Glossary of Terms
- Value at Risk (VaR)
- The maximum expected loss over a given horizon at a specified confidence level, e.g. a 95% 1-day VaR of $1,500 means worse losses are expected on fewer than 5% of days.
- Confidence Level
- The probability threshold the VaR statement covers — 95% means the loss threshold is breached about 1 day in 20.
- Square-Root-of-Time Rule
- The convention that volatility scales with the square root of the time horizon, used to convert annual volatility to daily or multi-day figures.
Frequently Asked Questions
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Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the US tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.