VaR
Value-at-Risk (VaR)
A statistical estimate of the maximum loss a portfolio is expected to suffer over a defined horizon at a given confidence level — e.g. "1-day 95% VaR of 1.2%" means a 5% chance of losing more than 1.2% in one day.
Value-at-Risk (VaR) is a probabilistic risk measure that summarises the tail of a portfolio's return distribution in a single number. A 1-day 95% VaR of 1.2% means there is an estimated 5% probability of a loss greater than 1.2% over a 1-day horizon, under the model used.
VaR is widely used inside fund-manager risk teams and as a regulatory measure for banks. It is sensitive to the estimation method (historical simulation, variance-covariance, Monte Carlo) and to the underlying period chosen. VaR is poor at capturing extreme tail risk — it tells you the threshold for the 5% worst day, not how bad the 1% worst day might be. Conditional VaR (CVaR, also called Expected Shortfall) addresses this by reporting the expected loss conditional on a tail event.
NZ retail PIE PDSs rarely disclose VaR directly. The FMA risk indicator is the standardised retail-facing metric; VaR is more often referenced in alternatives and hedge-style mandates.
Related terms
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volatility · σ
Standard deviation (volatility)
The statistical measure of how widely a fund's returns vary around their average. The input to the FMA risk indicator: weekly returns over five years, mapped to a 1–7 band.
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max DD · drawdown
Maximum drawdown
The largest peak-to-trough percentage decline in a fund's unit price over a measurement window. Captures worst-case past loss in a way standard deviation does not.
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FMA risk indicator
Risk indicator (1–7 scale)
A standardised 1–7 risk score every NZ retail managed fund must publish, calculated from the fund's price volatility (standard deviation of weekly returns) over the past five years.