How to Use the Portfolio VaR Calculator
Value at Risk (VaR) is a widely used risk metric that boils down "how much could I lose" into a single dollar figure over a chosen time horizon and confidence level. Enter your portfolio value, annual volatility (standard deviation), a confidence level (90%, 95%, or 99%), and a holding period, and this calculator applies the standard parametric (variance-covariance) method, which assumes normally distributed returns, to estimate your expected maximum loss.
The calculation converts annual volatility into a daily figure (dividing by the square root of 252 trading days), scales that daily volatility up to your holding period using the square root of time, then multiplies by the z-score for your chosen confidence level (1.282 for 90%, 1.645 for 95%, 2.326 for 99%) and your portfolio value. Higher confidence levels, longer holding periods, and higher volatility all push the VaR figure up.
Because this method assumes a normal distribution, it tends to underestimate the risk of the sharp, fat-tailed crashes that markets actually experience from time to time. VaR describes an expected loss boundary within a stated probability, not an absolute worst case, so it's best used alongside separate stress tests for extreme scenarios rather than as a standalone guarantee.
Frequently Asked Questions
No. VaR is the expected loss threshold within a chosen confidence level (e.g. 95%), meaning the remaining 5% of extreme scenarios can produce losses larger than the VaR figure. Think of it as an expected loss boundary, not an absolute cap.
Yes. A higher confidence level uses a larger z-score, which produces a larger VaR, because it's accounting for a wider range of extreme, lower-probability outcomes.