Investment Portfolio Risk Assessment Calculator
Evaluate your investment portfolio's risk profile using standard financial metrics including portfolio volatility, Sharpe ratio, Value at Risk (VaR), and diversification score.
Formulas Used
Portfolio Expected Return:
E[Rp] = Σ wi · ri
Portfolio Variance (full covariance matrix):
σp² = Σi Σj wi · wj · σi · σj · ρij
Sharpe Ratio:
S = (E[Rp] − Rf) / σp
Parametric VaR (Gaussian):
VaR = V · σp · zα · √T
where zα = 1.645 (95%), 2.326 (99%), 1.282 (90%); T = time horizon in years
Conditional VaR / Expected Shortfall:
CVaR = V · σp · φ(zα) / α
where φ is the standard normal PDF and α = 1 − confidence level
Marginal Risk Contribution of Asset i:
RCi = wi · (Σj wj · σi · σj · ρij) / σp²
Diversification Ratio:
DR = (Σ wi · σi) / σp
Herfindahl-Hirschman Index (HHI):
HHI = Σ wi² (0 = fully diversified, 1 = fully concentrated)
Assumptions & References
- Returns and volatilities are assumed to be annualized and normally distributed (Gaussian assumption).
- VaR is calculated using the parametric (variance-covariance) method; it does not capture fat tails or skewness.
- Daily volatility is derived as σannual / √252 (trading days); monthly as σannual / √12.
- Portfolio Beta is a simplified proxy using σp / σmarket with σmarket = 15% (long-run S&P 500 average).
- Correlations are assumed constant over the investment horizon (no regime changes).
- CVaR (Expected Shortfall) represents the average loss in the worst α% of scenarios.
- HHI below 0.15 is generally considered well-diversified; above 0.25 indicates concentration risk.
- Sharpe ratio benchmarks: <0 poor, 0–0.5 below average, 0.5–1.0 acceptable, 1.0–2.0 good, >2.0 excellent.
- References: Markowitz (1952) Modern Portfolio Theory; J.P. Morgan RiskMetrics (1994); Basel III VaR guidelines; Rockafellar & Uryasev (2000) CVaR.
- This calculator is for educational purposes only and does not constitute financial advice.