VALUE AT RISK (VAR)
VaR is a statistical calculation that forecasts the potential of the portfolio to maintain a specific value over a given time horizon. It is read as a probability of a portfolio’s minimum value over a projected number of months. As a default the PIQ model shows a target value minimum in 24 months at a 95% confidence level. It is interpreted as a targeted loss potential over the period.
The output is shown graphically, relative to a benchmark and it assumes a $100 dollar value at the beginning of the projection. A VaR of $15 means there is a 95% chance of having at least $85 in value left in the 24th month.
The time period used to develop the statistics for return, risk and correlations, the confidence level and the projected time periods are adjustments the users can make.
The model also shows Component and Marginal VaR. These measures show, individually, how each portfolio constituent contributes to the overall VaR calculation. This is particularly valuable when reviewing portfolios that hold ETF’s only.