Risk Preview

Where does the risk come from?

The risk decomposition shows how much each holding adds to your portfolio's volatility, how large a monthly loss can get in a bad case and what an equity crash would do to the portfolio.

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How it works

A holding's weight says little about its risk: half the money in stocks can account for two thirds of the volatility, because stocks swing more than bonds. The Euler decomposition splits the portfolio's volatility (its fluctuation per year) across the holdings so that the contributions add up exactly.

Value at risk (VaR) is the loss that is not exceeded in a month with 95% probability; conditional VaR (CVaR) is the average loss in the worst 5% of months. Portfolio Lab computes both parametrically (with a normal distribution) and historically (from the actual months) and splits them by holding as well.

On top come the risk budget over time, factors, regions and sectors, attribution against a benchmark and scenarios: what happens if stocks fall 30% or interest rates rise? All figures are based on past monthly returns and are not a forecast.

What a result looks like

Sample data

Made-up sample data, no real prices and no recommendation. Calculated with the same methods as the tool itself.

Inputs in this example

Locked: you can't change the inputs in the preview.

Portfolio

Diversified (45% Global equities, 15% Equities emerging markets, 30% Bonds, 10% Gold)

Period

Whole period: 01/2006 to 12/2025 (240 months)

Covariance estimate

Sample

Confidence level

95%

Rolling window

36 months

Benchmark

none

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Volatility p.a.9.5%

VaR 95% · 1 month4.0%

CVaR 95% · 1 month5.1%

Largest risk contributionGlobal equities

Global equities carries 63% of the risk at a weight of 45%. VaR and CVaR parametric; historical 3.7% and 4.7%. Diversification ratio 1.34.

Risk contributions by position

Euler decomposition of volatility: contribution = weight × marginal contribution; together the contributions give exactly the portfolio volatility.

Position	Weight	Volatility p.a.	Risk contribution p.a.	Share of risk	Risk − weight
Global equities	45.0%	14.3%	6.00%	62.9%	+17.9%
Equities emerging markets	15.0%	22.5%	2.98%	31.3%	+16.3%
Bonds	30.0%	5.1%	0.16%	1.7%	−28.3%
Gold	10.0%	14.6%	0.39%	4.1%	−5.9%
Portfolio	100%	9.5%	9.52%	100%	–

If the share of risk is above the weight, the holding carries more risk than its weight suggests. Diversification ratio = Σ weight × volatility / portfolio volatility; 1 means no diversification effect.

Value at risk and conditional VaR (95%, one month)

Loss not exceeded in one month with 95% probability (VaR) and the average loss beyond it (CVaR), broken down by position.

Position	VaR parametric	CVaR parametric	VaR historical (estimate)	CVaR historical
Global equities	2.55%	3.28%	2.51%	3.18%
Equities emerging markets	1.32%	1.68%	1.08%	1.32%
Bonds	-0.01%	0.01%	0.09%	0.07%
Gold	0.14%	0.19%	0.07%	0.13%
Portfolio	4.00%	5.15%	3.74%	4.69%

Parametric: normal distribution with the period's average return and covariance (z = 1.645); components by Euler. Historical: VaR = loss in the 12th-worst of 240 months, CVaR = average loss of the 12 worst months. Worst months: 05/2019 −7.2%, 05/2007 −5.6%, 12/2019 −5.2%, 12/2011 −4.8%, 04/2017 −4.6%, 09/2006 −4.6%

Risk budget over time (36 months)

Share of risk of each position in rolling windows at today's target weights. This lets you see whether the risk has shifted.

Global equitiesEquities emerging marketsBondsGold

Scenario: Equity crash

World equities fall by 30%. Other factors: With correlations, i.e. at their conditional expected value.

Scenario impact−18.6%

Mahalanobis distance7.3

Residual risk (1 month, ±1σ)0.6%

Portfolio R²95%

Factor	Assumed move	Referrers	Portfolio beta	Contribution
Global equities	−30.0%	specified	0.63	−18.86%
US rates	−0.20 pp	conditional expectation	-0.02	+0.35%
Gold	−0.4%	conditional expectation	0.14	−0.05%
Total				−18.56%

Contribution by position
Position	Weight	Contribution
Global equities	45%	−13.50%
Equities emerging markets	15%	−5.38%
Bonds	30%	+0.35%
Gold	10%	−0.04%

Each holding regressed on the factors over 240 months; contribution = portfolio beta × assumed move, the contributions add up exactly to the impact. Rate betas are shown as return per percentage point.

Assumptions: Monthly returns of the building blocks entirely made up, fixed target weights, reset to target every month. The scenario factors are made up as well: stocks and gold as the building blocks, the rate change derived from the bonds. Linear, no costs or taxes.

Frequently asked questions

What is a risk contribution?

The part of the portfolio's volatility caused by one holding: weight times marginal contribution. The contributions of all holdings add up exactly to the volatility. If the share of risk is well above the weight, the holding is a risk driver.

What is the difference between VaR and CVaR?

VaR is a threshold: with 95% probability you won't lose more in a month. CVaR looks beyond the threshold and averages the losses of the worst months. It reacts more strongly to rare, severe crashes.

What does the “equity crash” scenario show?

How far the portfolio would fall if global stocks dropped 30%. The other factors such as interest rates and gold move along as their past correlations suggest. In the tool you set your own shocks and replay historical crises on today's portfolio.

What data does the risk decomposition need?

Monthly returns of all holdings over a common period of at least 24 months. With an account Portfolio Lab uses the real prices of your ETFs and funds; short histories can be extended with a proxy. The figures on this page are entirely made up.

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