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Giving Advisors More Choices on the Risk Model Driving the Risk Number

We’re excited to announce that starting today, advisors now have an even greater set of choices for deciding which market risk assumptions to use when driving the Risk Number® and 95% Historical Range analytics for portfolios.

Average Returns

This calculates the Six Month Historical Range based strictly on average return data, and does not incorporate capital market assumptions. This will allow Riskalyze to more closely match other portfolio analysis tools that use average annual returns.

Advanced Risk Modeling (ARM)

This is the more traditional approach many Riskalyze advisors are used to. It calculates the Six Month Historical Range based on historical data in conjunction with capital market assumptions. When ARM is enabled, the approach to modeling risk is selected at the security level. We have four different approaches: Beta-weighted, Tactical, Interest Rate Sensitive and Average Returns. Advisors are empowered and encouraged to toggle between the various return modes or select the return mode that is believed to most precisely incorporate the investment’s underlying strategy. 

  • Beta-weighted
    With the Beta-weighted return mode, we use beta to normalize returns to the S&P, which allows advisors a mechanism for incorporating their beliefs, biases or stress tests on standard investments via updating the market assumptions.
  • Tactical
    For tactical investments, we use upside downside capture ratios, volatility and correlation data from Jan 1, 2008, to present.
  • Interest Rate Sensitive
    For interest-rate sensitive investments, we use correlation to the 10 Year US Treasury rate to model bonds and other interest rate-dependent securities, and we use actual volatility and correlation data from Jan 1, 2008, to present.
  • Average Returns
    Average Return examines the returns since June 2004 (or since inception for younger securities) for their average annual return performance. For an in-depth look at Average Returns, see our Knowledge Base article.

In either case, Riskalyze uses actual past return, volatility, and correlation statistics to calculate a portfolio’s Risk Number, and the upside and downside risk of the Six Month Historical Range. Please note that we haven’t changed the default for any existing users — they all have Advanced Risk Modeling enabled. Advisors can easily set their preferences in Settings > Account Details > Risk Model.

Want details? Visit our knowledge base article. Questions? Send us an email or drop us a live chat inside Riskalyze. We’d love to connect.