Risk and Volatility Metrics
Risk and volatility metrics quantify the uncertainty and potential downside of equity index investments. These complement the dashboard’s volatility chart and 30d volatility with deeper risk analysis dimensions.
Risk and Volatility Indicators
| Metric | Formula | Use |
|---|---|---|
| Beta | Cov(stock, market) ÷ Var(market) | > 1 = more volatile than market, < 1 = defensive |
| VIX | Implied volatility from S&P 500 options | < 15 complacent · 15–25 normal · > 30 fear |
| Maximum Drawdown | Worst peak-to-trough decline | Historical tail risk measure |
| Sortino Ratio | Return ÷ Downside Deviation | Like Sharpe but only penalizes downside volatility |
| Calmar Ratio | Annualized Return ÷ Max Drawdown | Return per unit of tail risk |
| Value at Risk (95%) | 5th percentile of daily return distribution | ”Worst day in 20” under normal conditions |
Beta
Quote
“Beta is a measure of risk only if you define risk as volatility relative to the market — which most practitioners do.”
— William Sharpe
Beta measures a stock’s sensitivity to market movements.
| Beta | Interpretation |
|---|---|
| < 0 | Inverse correlation (rare — gold miners, some hedges) |
| 0 – 0.5 | Defensive (utilities, consumer staples) |
| 0.5 – 1.0 | Less volatile than market |
| 1.0 | Moves with the market |
| 1.0 – 1.5 | More volatile than market |
| > 1.5 | High sensitivity (tech, growth, financials) |
VIX (CBOE Volatility Index)
Quote
“Volatility is the price of admission. The prize inside is superior long-term returns.”
— Nick Murray, Simple Wealth, Inevitable Wealth (1999)
The VIX measures implied volatility from S&P 500 options, often called the “fear gauge.”
| VIX Level | Market Regime |
|---|---|
| < 15 | Complacent — low expected volatility |
| 15–25 | Normal market conditions |
| 25–30 | Elevated uncertainty |
| > 30 | Fear — high stress (corrections, geopolitical shocks) |
| > 40 | Crisis-level (2020 COVID, 2008 GFC) |
Maximum Drawdown
Quote
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
— Warren Buffett
The maximum drawdown measures the largest peak-to-trough decline in portfolio value over a given period.
The dashboard drawdown chart displays this metric in real-time:
| Drawdown | Severity |
|---|---|
| 0% to −5% | Normal fluctuation |
| −5% to −10% | Correction |
| −10% to −20% | Bear territory |
| > −20% | Severe bear market |
Sortino Ratio
An improvement over the Sharpe ratio that only penalizes downside volatility — upside volatility is not considered risk.
Where only includes returns below the target (typically 0 or the risk-free rate).
| Sortino | Interpretation |
|---|---|
| > 3.0 | Excellent downside risk management |
| 2.0–3.0 | Strong risk-adjusted returns |
| 1.0–2.0 | Acceptable |
| < 1.0 | Poor downside protection |
Calmar Ratio
Measures return per unit of maximum drawdown — useful for evaluating how much pain investors endured for their returns.
| Calmar | Interpretation |
|---|---|
| > 3.0 | Excellent (high return, small drawdowns) |
| 1.0–3.0 | Good |
| < 1.0 | Returns don’t justify the drawdown experienced |
Value at Risk (VaR)
Quote
“VaR is like an airbag that works all the time, except when you have a car accident.”
— David Einhorn
The 95% VaR estimates the worst expected loss on 1 out of 20 trading days under normal conditions.
VaR Limitations
VaR does not estimate losses beyond the confidence threshold. A 95% VaR of −3% says nothing about how bad the worst 5% of days can be. Use Conditional VaR (CVaR / Expected Shortfall) for tail risk estimation.
Dashboard Volatility Metrics
The dashboard displays two volatility visualizations:
30d Annualized Volatility
Rolling 30d Sharpe Ratio
Related
- chart-metrics — Dashboard volatility and Sharpe ratio visualizations
- index-snapshot-metrics — 30d volatility and index-level risk metrics
- daily-signal-scores — Momentum z-scores related to trend strength
- technical-indicators — RSI, MACD, and other technical momentum indicators
- valuation-ratios — Fundamental valuation metrics