Risk
Conditional value at risk
Also called CVaR or Expected shortfall
The average loss on the bad days that VaR excludes.
How it works
Where VaR asks "how bad is the threshold", CVaR asks "and if we cross it, how bad is it then". It averages the losses in the tail beyond the confidence level.
It is the more informative statistic and has largely replaced VaR in regulatory frameworks for exactly that reason.
Related terms
- Value at riskAn estimate of the most you would expect to lose over a period, at a stated confidence level.
- Fat tailsThe tendency of extreme market moves to happen far more often than standard statistics predict.
- Stress testModelling what a portfolio would do under a specific severe scenario, rather than under average conditions.
More in Risk
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.