ATLASValue at risk (VaR)
Investing glossary · Risk and statistics
The loss an investment is not expected to exceed over a given period with a given confidence, such as 95%.
Definition
Value at risk (VaR) answers: "what is the most I can expect to lose over a period, at a given confidence level?" A one-month 95% VaR of 8% means that in 95 out of 100 months the loss should be smaller than 8%, and in the other 5 it could be larger.
VaR is popular because it summarizes risk in one number in currency units, but it says nothing about how bad the worst 5% can be, which is why it is paired with expected shortfall. It also depends on the method: a normal approximation is simple but underestimates fat tails, while simulation can use more realistic distributions.
Formula
VaR(95%, T) ≈ 1.645 × σ_daily × √T × position
1.645 is the 95th percentile of the standard normal distribution; σ_daily × √T scales daily volatility to a horizon of T trading days; the position is the amount invested.
Worked example
Take a position of $10,000 in NVIDIA (NVDA). Its monthly volatility is about 9.5%, so a simple 95% one-month VaR is 15.7% of the position, about $1,568. In roughly 1 month out of 20 the loss could be larger than that.
This is the simple normal approximation, kept short on purpose; ATLAS models use fatter tails, so real VaR is usually somewhat higher.
How ATLAS uses it
ATLAS shows VaR and expected shortfall in its risk analytics for portfolios, computed from simulated outcomes rather than a single bell-curve formula.
Related in ATLAS: Scenario simulation →Browse all ATLAS tools →See it on a real stock
The example above uses these companies. Open their pages for the full numbers:
Frequently asked questions
Is VaR the maximum possible loss?
No. It is a threshold: the loss is expected to stay below it with the chosen confidence, but on the remaining days it can be much worse.
Which confidence level is used?
95% and 99% are the most common, and horizons of one day to one month. The longer the horizon and the higher the confidence, the larger the VaR.
Related terms
Put the idea to work on your own stocks
Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.
Try ATLAS →Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer