A Value at Risk (VaR) calculator estimates the maximum loss you'd expect on a position over a given time horizon, at a specified statistical confidence level.
Enter your position value, daily volatility, confidence level, and time horizon, and the calculator returns your estimated VaR in Rand terms, along with how it compares across different confidence levels.
This calculator is for educational purposes only. Results are estimates and may vary depending on market conditions, spreads, commissions, platform settings, and exchange rates. It should not be considered financial advice.
Value at Risk (VaR) estimates the maximum amount you'd expect to lose on a position over a given time horizon, at a specified confidence level, under normal market conditions. A 95% VaR of R5,000 over 1 day means there's a 95% statistical chance your loss won't exceed R5,000 on that position over the next trading day, and correspondingly a 5% chance it could.
95% is the most commonly used default in retail and institutional risk reporting, offering a reasonable balance between being genuinely informative and overly conservative. 99% gives a more conservative, larger VaR figure for risk-averse planning, while 90% gives a smaller, less conservative figure, the right choice depends on how cautious you want your risk estimate to be.
Volatility scales with the square root of time under standard statistical assumptions, meaning uncertainty about price movement genuinely grows the further into the future you're estimating. A 5-day VaR is larger than a 1-day VaR for the same position because there's simply more time for adverse price movement to accumulate.
VaR explicitly does NOT tell you how bad losses could be beyond the stated confidence level, a 95% VaR says nothing about the size of that remaining 5% tail-risk scenario, which is precisely where the most severe losses (like a market crash or gap event) actually occur. VaR is best understood as a measure of "normal" risk, not protection against extreme, low-probability events.
Daily volatility is typically calculated as the standard deviation of an instrument's daily returns over a recent historical period, our own Volatility Calculator can compute this directly from a series of closing prices if you don't already have this figure from your charting platform or broker.
VaR is more commonly associated with institutional risk management, but the underlying concept, a probabilistic estimate of potential loss over a defined period, is genuinely useful for retail traders too, particularly for understanding total portfolio-level risk across multiple open positions rather than looking at each position's risk in isolation.
A 99% confidence level provides a more conservative, wider potential-loss estimate than 90% or 95%, appropriate when you want to understand a more extreme, less frequent but still plausible worst-case scenario.
No, VaR describes a statistical threshold not expected to be exceeded with a given confidence level over a specific timeframe, genuine tail-risk events beyond this confidence level, while less probable, remain mathematically possible.
Longer time horizons produce proportionally larger VaR figures, since volatility scales with the square root of time, a one-week VaR is meaningfully larger than a one-day VaR calculated from the same daily volatility input.
VaR is genuinely valuable for both, though it's particularly powerful at the portfolio level, since it can account for how different holdings' volatilities interact together, rather than viewing each position purely in isolation.
Not entirely, VaR reflects statistical probability under normal market conditions, it doesn't capture extreme tail events or genuine black-swan scenarios, which can produce losses meaningfully beyond what VaR alone would suggest.