Portfolio Risk Calculator – Volatility, VaR, Position Risk and Concentration
The Portfolio Risk Calculator is designed to translate your portfolio structure into clear risk metrics. Instead of guessing how risky a collection of positions might be, you can estimate portfolio volatility, Value at Risk (VaR), single-position risk and concentration using a simple input form. This is useful for long-term investors, traders, and anyone who wants to see how diversification and position sizing affect overall risk.
Risk cannot be eliminated, but it can be measured and managed. By looking at volatility, position risk and diversification side by side, you can decide whether your portfolio is comfortable, too aggressive or overly concentrated in a few holdings.
How the Portfolio Risk Calculator Works
The calculator is split into three modes:
- Portfolio Volatility & VaR: Uses asset weights, volatility and a correlation assumption to approximate overall portfolio volatility and Value at Risk.
- Position Risk: Measures the risk of a single position relative to the portfolio using entry price, stop-loss and quantity.
- Diversification & Concentration: Uses a set of position weights to compute a concentration metric and effective number of positions.
The goal is not to provide a full institutional risk engine, but a practical, easy-to-use approximation that helps you think more clearly about where your portfolio risk comes from.
Mode 1: Portfolio Volatility and Value at Risk (VaR)
Portfolio volatility reflects how much the total value of your portfolio might move in percentage terms. Higher volatility means larger swings in both directions. This calculator uses up to three assets with an average correlation assumption to estimate volatility.
Inputs
- Total portfolio value.
- Weight and annual volatility for up to three assets.
- Average correlation between assets (one value for all pairs).
- Time horizon in days.
- Confidence level for VaR (such as 95%).
Portfolio Volatility Formula (Three-Asset Approximation)
Volatility is calculated using the standard portfolio variance formula with a single average correlation value:
Here:
- wi are the normalized asset weights.
- σi are annual volatilities as decimals.
- ρ is the average pairwise correlation.
Annual volatility is the square root of variance. Daily volatility is approximated by dividing annual volatility by the square root of 252 trading days.
Value at Risk (VaR) Approximation
VaR estimates how much you could lose over a chosen horizon with a given confidence level under normal conditions:
z is the critical value from the normal distribution (for example, about 1.65 for 95% confidence), σdaily is daily volatility and Days is the time horizon.
Mode 2: Single-Position Risk
The Position Risk mode focuses on one holding inside your portfolio. It estimates how much you stand to lose between your entry price and stop-loss level, and how that potential loss compares to the size of your portfolio.
Inputs
- Total portfolio value.
- Entry price.
- Stop-loss price.
- Position quantity (number of units or shares).
Position Risk Formulas
This helps you assess whether a single trade or holding has an acceptable impact on your overall portfolio if the stop-loss is hit.
Mode 3: Diversification and Concentration
Even if total volatility looks reasonable, a portfolio may be heavily concentrated in a few positions. The Diversification mode uses a set of position weights to compute a concentration index and an effective number of positions.
Herfindahl-Hirschman Index (HHI)
Weights are expressed as decimals and automatically normalized to sum to 1. A higher HHI means more concentration. For example, a single-position portfolio has HHI = 1, while a portfolio equally split across 10 positions has HHI = 0.1.
Effective Number of Positions
If HHI is 0.25, the effective number of positions is 4, meaning the portfolio is as concentrated as a portfolio with four equal-weighted positions.
Why Measure Portfolio Risk?
Risk and return are linked. A portfolio with higher risk may deliver higher or lower returns, but its path will be more volatile. Measuring risk helps you:
- Decide whether your portfolio fits your risk tolerance.
- Spot oversized positions that dominate your risk.
- Compare different allocations on more than just expected return.
- Understand the impact of diversification and correlation.
- Plan rebalancing decisions and position size limits.
Limitations of This Portfolio Risk Calculator
This tool uses simplified models and assumptions. Real portfolios may contain many more assets, non-linear instruments such as options, or positions denominated in different currencies. Markets can also experience jumps, fat tails and structural breaks that are not captured by normal-distribution VaR.
Use the results as an approximation and a conversation starter, not as a guarantee of actual outcomes. For complex portfolios, leverage or derivatives, more advanced risk modeling tools are recommended.
How to Use This Tool Effectively
- Start with the Portfolio Volatility & VaR tab to get a quick feel for portfolio-level risk.
- Use the Position Risk tab to check that no single trade risks more of your portfolio than you are comfortable with.
- Review the Diversification & Concentration tab to see whether your portfolio is dominated by a few large positions.
- Experiment with weights, volatility and correlation to see how changes in allocation affect overall risk.
- Combine insights from this calculator with your investment goals and time horizon before adjusting your portfolio.
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Portfolio Risk Calculator FAQs
Frequently Asked Questions About Portfolio Risk
Find answers about volatility, VaR, position risk and concentration metrics.
Portfolio volatility measures how much the value of your portfolio tends to fluctuate over time. It is usually expressed as an annual percentage and derived from the combination of asset volatilities, weights and correlations.
The VaR estimate is based on a standard deviation model and a normal distribution approximation. It is a simplified view of risk and may underestimate losses in extreme markets or for portfolios with complex instruments.
There is no single “good” level, but many investors aim to avoid very high concentration in just a few positions. A higher effective number of positions and a lower Herfindahl index generally indicate a more diversified portfolio, all else equal.
The right risk per position depends on your strategy, time horizon and risk tolerance. Some traders limit risk per position to a small fraction of their portfolio, while long-term investors may accept larger swings in individual holdings.
No. All values are based on unlevered portfolio value that you enter. If you use leverage or margin, your actual risk can be significantly higher than the estimates shown here.
The calculator is designed as a planning and educational aid. Professional risk management for large or complex portfolios usually requires more advanced models, more granular data and specialized software.