Value at Risk (VaR) 95% and 99%: practical guide

What VaR 95% and 99% mean

Value at Risk estimates the loss threshold that should not be exceeded over a chosen time horizon at a given confidence level.

$VaR_c = -Q_{1-c}(R)$

Example

If daily VaR 95% is 2.1% and VaR 99% is 3.4% on a $100,000 portfolio:

• VaR 95% is about $2,100
• VaR 99% is about $3,400

Historical vs parametric VaR

• Historical VaR: uses empirical return quantiles.
• Parametric VaR: uses distribution assumptions (often normal) with mean and volatility.

Historical is often more realistic in changing markets; parametric is faster for repeated scenarios.

Key limits

VaR does not describe the average loss beyond the threshold and can underestimate fat-tail events. Combine VaR with drawdown and CVaR analysis.

Next step

• Check your current risk profile in the Wallible app
• Test allocation changes in portfolio backtesting
• Read related guides: Recovery Factor and Maximum Drawdown