Value at Risk

Also known as VaR, Value At Risk is a widely used measure of the risk of loss on a portfolio at any given time.

It helps to answer the question of what is the largest loss that is likely on this investment over a set time frame with a known confidence level. This risk measure is favored by investors distilling risk down into what are the odds for losing money and VaR has an answer for the worst case scenario. VaR is at a disadvantage because it assumes a normal distribution pattern and investment behavior that is predictable, whereas real markets do not always comply with predictability ratios.