Value at Risk (VaR) Calculator

What is Value at Risk (VaR)?

Value at Risk (VaR) is a risk measurement that estimates the maximum expected loss of a portfolio over a specified time horizon at a given confidence level. For example, a 1‑day 95% VaR of $5,000 means you expect to lose more than $5,000 on no more than 5% of trading days.

How this VaR Calculator Works

This calculator uses the parametric (variance–covariance) VaR method with a normal distribution assumption:

VaR = Portfolio Value × Z × σt

where:
- Z is the z-score for the selected confidence level
- σt is the volatility scaled to the chosen time horizon:
  σt = (Annual Volatility / √252) × √(Time Horizon in days)

Common Z‑values:

• 90% confidence: Z ≈ 1.28
• 95% confidence: Z ≈ 1.65
• 99% confidence: Z ≈ 2.33

Limitations of VaR

• Assumes normally distributed returns and may underestimate extreme tail risk.
• Does not tell you how large losses can be beyond the VaR threshold.
• Relies on the quality of volatility estimates and past market data.

Use VaR as one tool among many in your risk management process, alongside stress testing and scenario analysis.