Value at Risk (VaR) Calculator
Value at Risk answers one question: how bad is a normal bad day? At 95% confidence over one day, it's the loss you'd exceed only about 1 day in 20. This uses the parametric (normal) method — quick, and the standard first pass at sizing downside.
- • Horizon volatility = annual volatility × √(days ÷ 252) — risk grows with the square root of time.
- • VaR = portfolio value × horizon volatility × z, where z is the normal cutoff (1.65 at 95%, 2.33 at 99%).
Worked example: a $10,000 portfolio at 20% annual volatility, 1 day, 95% → ≈ $207 (about 2.1%). Ten days out, it's √10× larger.
⚠ Parametric VaR assumes returns are normally distributed. Real markets have fat tails — crashes are far more frequent and deeper than a normal curve predicts — so true worst-case losses are usually worse than this figure. VaR is a floor for thinking about risk, never a cap on it. Educational tool, not advice.
A calculator shows what a rule should do on paper. Whether a strategy actually beats simply buying and holding — costs on, losses shown, no hindsight — is a different question, and the only one that pays. Most rules don't beat holding; the backtest is how you find the rare few that do — so when you build one that survives, you'll know it isn't a fake edge, then prove it forward before you risk real money. It won't tell you you'll win — nothing honest can.