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Portfolio variance is a statistical value that assesses the degree of dispersion of the returns of a portfolio. It is an important concept in modern investment theory. Although the statistical measure by itself may not provide significant insights, we can calculate the standard deviation of the portfolio using portfolio variance. Description. Value At Risk VaR is a calculation used to estimate the magnitude of a portfolio's extreme or unlikely future gain or loss. Rather than looking to predict how much a portfolio could make or lose on a typical day, VaR's goal is to calculate, with a certain degree of certainty, large, out of the ordinary profit & loss events that a. Historical Simulations VaR requires a long history of returns in order to get a meaningful VaR. Indeed, computing a VaR on a portfolio of Hedge Funds with only a year of return history will not provide a good VaR estimate. Step 2 – Apply the price changes calculated to the current mark-to-market value of the assets and re-value your portfolio.

Afterwards, these consolidated portfolio return can be distributed just like the historical data above to calculate portfolio VaR. Example: Suppose the returns taken in the example above are end of the day results of stocks A, B, C and D with respective initial weights of 20%, 30%, 10% and 40% respectively. 08/09/2009 · How do you calculate portfolio VAR for a two asset portfolio if the assets are partially correlated but are not perfectly correlated? On the investment risk questions from 2008-online multiple choice questions it asks this question: QUESTION: Assume a two-asset portfolio with a portfolio value of \$20 million. Each asset weighs 50% of the portfolio. VaR for asset portfolio. 2. The focus in VaR is clearly on downside risk and potential losses. Its use in banks reflects their fear of a liquidity crisis, where a low-probability catastrophic occurrence creates a loss that wipes out the capital and creates a client exodus. In order to calculate a VaR, you first need to estimate the portfolio’s or security’s volatility, σ, the money invested in the portfolio or security, W, and if required the expected return, μ. Thereafter, the VaR can be calculated by imposing a certain probability and time horizon.

The calculation is straightforward, and for a one-asset portfolio is given by this equation. x α is the αth percentile of a normal distribution, and P is the portfolio value. x α is calculated with Excel’s NORM.S.INV function. The equations for a two-asset portfolio are given here. Download Excel Spreadsheet to Calculate VaR of One-Asset. VAR is a simple, yet powerful tool in risk management and provided the assumptions are understood it can be used to good effect. VAR’s biggest advantage is that it gives a single cash figure that tells you how much you could lose in the worst case. Here is the VAR calculator. 16/07/2015 · Conditional Value at Risk CVaR attempts to address the shortcomings of the VaR model, which is a statistical technique used to measure the level of financial risk within a firm or an investment portfolio over a specific time frame. Calculation of Value at Risk for a portfolio not only requires one to calculate the risk and return of each asset but also the correlations between them. Thus, the greater the number or diversity of assets in a portfolio, the more difficult it is to calculate VAR. 2. Difference in methods.