risk-metrics-calculation

Comprehensive risk measurement toolkit for portfolio management, including Value at Risk, Expected Shortfall, and drawdown analysis.

When to Use This Skill

• Measuring portfolio risk
• Implementing risk limits
• Building risk dashboards
• Calculating risk-adjusted returns
• Setting position sizes
• Regulatory reporting

Core Concepts

1. Risk Metric Categories

| Category | Metrics | Use Case | | ----------------- | --------------- | -------------------- | | Volatility | Std Dev, Beta | General risk | | Tail Risk | VaR, CVaR | Extreme losses | | Drawdown | Max DD, Calmar | Capital preservation | | Risk-Adjusted | Sharpe, Sortino | Performance |

2. Time Horizons

Intraday:   Minute/hourly VaR for day traders
Daily:      Standard risk reporting
Weekly:     Rebalancing decisions
Monthly:    Performance attribution
Annual:     Strategic allocation

Detailed patterns and worked examples

Detailed pattern documentation lives in references/details.md. Read that file when the navigation tier above is insufficient.

Best Practices

Do's

• Use multiple metrics - No single metric captures all risk
• Consider tail risk - VaR isn't enough, use CVaR
• Rolling analysis - Risk changes over time
• Stress test - Historical and hypothetical
• Document assumptions - Distribution, lookback, etc.

Don'ts

• Don't rely on VaR alone - Underestimates tail risk
• Don't assume normality - Returns are fat-tailed
• Don't ignore correlation - Increases in stress
• Don't use short lookbacks - Miss regime changes
• Don't forget transaction costs - Affects realized risk