What is Value at Risk (VaR) in simple terms?
Value at Risk (VaR) is a way to estimate how much money your portfolio could lose over a time period (here:
one day) during a typical “bad” market move.
Think of it as:
“How bad could tomorrow be, under normal market conditions?”
VaR is a statistical estimate, not a guarantee. On rare days (big shocks), losses can be larger than VaR.
What does “Daily VaR” mean?
Daily VaR estimates the potential loss over one trading day.
For example, if your portfolio Daily VaR is ₹18,848, it means the model estimates that on most days the loss should be less than ₹18,848 (but larger losses can still happen).
Is VaR the same as “maximum loss”?
No. VaR is not the absolute worst-case loss. It is an estimate based on historical behavior and assumptions about “normal” market moves.
Extreme events (crashes, gaps, sudden news) can cause losses above VaR.
What is Risk Contribution?
Risk Contribution tells you how much each stock contributes to the portfolio’s total risk (VaR).
It depends on the stock’s weight, its volatility (how much it moves), and how it moves compared to other holdings.
Why can a stock with a small weight have a big risk contribution?
Because risk is not only about size. A smaller holding can drive a lot of risk if it is more volatile, or if it tends to move in the same direction as your other holdings.
In technical terms, portfolio risk depends on volatility and correlation, not just weights.
How should I interpret “Weight %” vs “Risk Contribution %”?
Compare the two:
- If Risk Contribution % > Weight %: the holding is a risk driver (more risk than its size).
- If Risk Contribution % < Weight %: the holding is relatively more stable or diversified within your portfolio.
How do I reduce my portfolio VaR?
Common approaches:
- Reduce concentrated positions (especially risk drivers).
- Diversify across sectors and styles (not just number of stocks).
- Replace very volatile stocks with more stable alternatives.
- Avoid making many holdings highly correlated (all moving together).
What does “Total Value” mean in the risk summary?
Total Value is the current market value of all positions in the selected portfolio (in the portfolio currency).
Does Kraytis tell me what to buy or sell?
No. Kraytis is a risk measurement and decision-support tool. It helps you understand the risk impact of your holdings and changes, but it does not provide personalized investment advice.
How often do results update?
VaR and risk contribution update when you change positions (add/remove holdings or adjust quantities). This lets you do fast “what-if” testing while building or rebalancing a portfolio.
Any best practices for using VaR as a retail investor?
A few practical tips:
- Track VaR over time, not just once.
- Use VaR to set a comfort range (a “risk budget”).
- Watch for a single holding dominating risk contribution.
- Combine VaR with common-sense stress thinking (earnings, macro shocks).
VaR is best used as a dashboard metric alongside diversification and liquidity awareness.
