risk-metrics-calculation

Summary

---
name: risk-metrics-calculation
description: Calculate portfolio risk metrics including VaR, CVaR, Sharpe, Sortino, and drawdown analysis. Use when measuring portfolio risk, implementing risk limits, or building risk monitoring systems.
---

# 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

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