After completing a Value at Risk (VaR) or Expected Shortfall (ES) analysis, Plutus:VaR provides you with detailed, actionable insights into your portfolio’s risk profile. Here’s a breakdown of the results you’ll receive, how to interpret them, and how to leverage these insights in your risk management decisions.

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Key Results Provided

  1. Overall Portfolio Value at Risk (VaR): This represents the maximum loss you can expect within a given confidence interval over a specified period (e.g., 95% or 99% confidence level). This metric helps you understand the level of risk in your entire portfolio and allows you to compare potential losses under different conditions.

  2. Expected Shortfall (ES): Also known as Conditional VaR, this metric provides insight into the average loss in the worst-case scenarios beyond the VaR threshold. Expected Shortfall helps capture tail risk and gives you a sense of extreme losses your portfolio could experience.

  3. Marginal VaR and ES by Position: This breaks down the VaR and ES contributions of each individual position in your portfolio. By understanding the marginal risk contributed by each asset, you can identify which positions drive the most risk and where adjustments might mitigate portfolio risk.

  4. Portfolio Position Weights and Net Exposure: This shows the weight of each asset relative to the entire portfolio, along with the net exposure for each position. Understanding position weights and exposures can help you balance your portfolio and ensure it aligns with your risk tolerance.

  5. Profit and Loss Distribution Histogram: This histogram represents the simulated distribution of potential profits and losses for your portfolio. The histogram provides a visual overview of the likelihood and severity of various profit and loss scenarios, helping you gauge the probability of extreme outcomes.

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Interpreting Your Results

  • Risk Concentration: Review the marginal VaR and ES to determine where risk concentration exists within your portfolio. Positions with disproportionately high contributions may require adjustments to reduce overall risk exposure.
  • Potential Loss Severity: Use the Expected Shortfall value to assess the potential severity of losses in adverse market scenarios. This information is critical for understanding the potential downside in worst-case events.
  • Portfolio Balance: Analyze the position weights and net exposure to evaluate if any single position is overly concentrated. You may want to rebalance positions based on your risk tolerance and investment goals.
  • Distribution of Outcomes: The P&L distribution histogram allows you to visually assess the likelihood of different outcomes. A long left tail, for example, may indicate a risk of extreme losses, suggesting that risk mitigation strategies should be considered.

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Using the Results

These insights enable you to:

  • Optimize Portfolio Composition: Adjust asset weights, add or remove positions, or apply hedging strategies based on the VaR and ES findings to improve risk-adjusted returns.
  • Enhance Risk Management: Use the Expected Shortfall to prepare for worst-case scenarios, and set limits on riskier positions to minimize potential losses.
  • Monitor and Adjust: Regularly re-run VaR and ES analyses as market conditions change to keep your portfolio aligned with your risk tolerance.

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Accessing and Downloading Results

All results can be downloaded either as raw data files for further analysis or as a formatted PDF report. The PDF provides a comprehensive summary of your portfolio’s risk profile, allowing you to share insights with stakeholders or keep records for regulatory or strategic purposes.

These results are designed to give you a deeper understanding of your portfolio’s risk dynamics, empowering you to make informed, proactive investment decisions.

Stress Testing