Tag Archives: VaR

Is my portfolio working or not?

Portfolio main screen in T-Advisor

Investors organise efficiently their investments in portfolios. That’s the rule, but the question is: how to follow up my portfolio? Can I preview somehow troubles in my investments? Which ratios should I take into account to set and allocate my assets?

There are some indicators that give us some clues whether we are right or wrong and the changes we have to decide:

  • Returns: of course, this is the first one. As investor, you do not have to be anxious about the short term, because volatility is our current rule. You should use a tool that provides you different terms in order to compare the evolution. However, you have to think about changes if the returns are negative in the middle term.
  • Comparison with other references: it is a good idea to compare the evolution of your portfolio with the benchmarks (an index or a smart benchmark). This comparison will help you evaluate a proportion of the profits or losses that you get and diminish or underline the importance of the result. For instance, if your portfolio losses 3% and your benchmark losses 5%, it is not so bad. You are better than the index, although you should consider change your strategy, it the negative trend intensifies.
  • Diversification: get charts about the proportion of the assets in your portfolio related to regions, currencies and asset category. A diversified allocation will help you avoid several risks.
  • Risk: this is actually the second most important indicator after returns. Analyse the volatility, the value at risk (VaR) and the risk contribution of your positions. A segmented analysis will focus better your next decisions. Should I keep, sell or buy? Another quite important figure is the Sharpe ratio to understand how interesting is assuming risks in order to obtain certain returns.
  • Trend: you should as investor use tools to get the portfolio trend, if bullish or bearish.
  • Portfolio and investor profile consistency: is your portfolio consistent with your investment profile, your risk tolerance and your expected returns? That is another question that you have to ask yourself.

You need tools to make a full analysis and obtain a whole view over your portfolio and take the best decisions to improve your results. It is important that you get unbiased indicators, watch risk and returns, understand everything and take rational decisions, never guided by a short term situation. At the end, it is not only about profits, but above all capital preservation. The T-Advisor platform offers these figures so that everyone can set and allocate assets their own portfolios in the most efficient way.

Investor: watch these figures to select your assets

You are a new investor or with low experience in investments. You have available a good database to check possible asset to invest in, but which would be the right one? How can you select the most interesting assets for your goals? We recommend you to look into a database with high-quality reports about the assets. There you will find lots of information. Check the following figures to take a decision:

Figures to follow in investments

  • Performance: look at the historical performance. How good were the returns in the last months? And in the last years? It is true that past performances do not guarantee future results, but it show a trend about the long-term stability. It is not the same to get a share with positive and negative returns in different years than a one with regular positive returns.
  • Volatility: this is quite important. Volatility measures a deviation from a middle point. For instance, if the price goes up 4% one day and goes down 3% the following, the security is quite volatile. On the other hand, if the price goes up 0.2% three days and goes down 0.1% one day, it is less volatile. Take it into account depending your risk profile: if you are risk averse, you will not feel comfortable with a share that has high variations every day.
  • Trend: it is the development of a security in a timeframe. You have to consider the recent trend to decide to invest or not. A trend has a slope. If the slope is strong, it means that the trend has accelerated. For instance, if the slope is strong upwards, it can mean a bubble or that there is speculation behind the movement. On the other hand, if is very negative, it can mean a crisis in the company.

Chart to follow investments

  • A historical chart: an image is worth more than a thousand words. It is easy to detect the items mentioned above in a chart. The best one is an active chart where you can choose different timeframes.
  • Value at Risk (VaR): this is an advanced item, but very useful. What does it measures? The probability of losses in a timeframe. You will read “VaR one week” or “VaR one year”. It indicates that you can lose at maximum the written figure with a 95% probability. In other words: if you invest in that asset, you can earn, you can lose less than the indicated figure in the VaR, you can lose at maximum that figure with 95% probability and you can lose more than that maximum with 5% probability. These are the scenarios that you have to analyze. The highest VaR it is, the highest risk you accept.

This is the beginning. There are some more that we will comment in future posts. The T-Report in T-Advisor offers all these data. Check it in our platform.

Diversification protects against risks

The title sentence sounds quite radical, but there is a truth behind these words. Usually, portfolios are composed by different kind of assets. Every analyst, every advisor always recommends a diversified portfolio with fixed income assets, stocks, commodities… But the question is: ok, everybody says that, but how much do I earn for the diversification.

The answer is simple: T-Advisor has the tool for it. Do you remember an older post about value at risk (VaR)? This measure shows the probability that your portfolio loses a maximum percentage in a period (week, month or year). To complete this information, T-Advisor has available a tool called “diversification benefit”.

Diversification benefit tool in T-Advisor

Look at the picture above. The item compares the difference between the decision of diversifying or not the portfolio. Through complex statistical calculations, T-Advisor reports the investor about the money he or she could lose if his or her assets would be not diverse enough. In this example, this portfolio has an 8.21% VaR 1 year. If this portfolio would not be diversified, he risk would increase till 12.07%. This investor could have 4 points more risk of losing money.

Portolio risk analysis in T-Advisor

This figure has to be linked with other T-Advisor tools and data. For instance, the picture before reports about the volatility and the effect of a diversified portfolio with that volatility.

Diversification suggestions in T-Advisor


In this case, T-Advisor has a follow up analytics. This chart has a report about diversification. In this example, the tool says that the diversification is low. With this low diversification, VaR is high (8.21%), but it would be worse with any diversification. The difference between diversified and undiversified VaR would be surely higher, if this portfolio had more different assets.

There are mantras amongst experts and advisors, such as “you have to diversify your portfolio”, but nobody measures with figures this advantage. T-Advisor does it and reports its users about it. Data and figures about our portfolio like this mean less chances of losing money.

Value at risk: how much money could I lose?

In investments, the main threat is a negative change in prices. Suddenly, the price trend turns down and you do not check regularly your portfolio. After some weeks, you discover that your portfolio devaluated. How could I have prevented it? Of course, you could maybe follow more often the markets or delegate in an advisor. The third option is having the right information and figures to preview possible losses if you do not trade in the markets often and take decisions from them.

Value at risk (widely known VaR for its initials) is the help figure for it. Look at the following picture from T-Advisor with these figures:

Value at Risk in T-Advisor

“My portfolio” has an -8,17% VaR. What does it mean? VaR is a statistical measure. In this case, the information that you get from it is: you can lose more than an 8,17% in a year with a probability of 5% for this portfolio if you do not trade in this period. Reading it on the opposite: there is a probability of 95% that you could lose at the most an 8,17% in a year.

In T-Advisor you can also compare your portfolio VaR with the smart benchmark (read our previous post) and the markets in which you invested. For instance, the risk of this portfolio is less than the indexes where we have some investments.

Moreover, you can obtain this figure as a proportion (above) or in absolute figures (below) linked with the volatility.

Risk profile from T-Advisor

But what if I had an undiversified portfolio? How to find out the risk of diversifying against not doing it? T-Advisor shows you this comparison both as a proportion and in absolute terms. You can also obtain the earnings if you diversify your positions.

Diversification benefits in T-Advisor

Risk is the great foe for investors. Nobody wants to lose money in the markets, but sometimes it happens, because markets are volatile (read more in our post about it). VaR is an intuitive figure, easy to understand, and provides an immediate picture of the money that we are risking for a combination of different stocks or assets, not just one. Such figure lets us react and change our positions to prevent losses if we consider that we are playing hard.