How does TBanque calculate and present risk?

Generally, investors use risk to measure an investment’s historical performance to better evaluate its potential gains and losses in the future. 

 

This is commonly done by measuring the standard deviation of an investment’s value. This measurement indicates how sharply the value of that investment changes over time. The sharper the deviation, up or down, the more volatile the investment and the riskier it may be considered.

 

Risk can be used to measure individual assets or portfolios. At TBanque, we present the risk* of an investor’s portfolio accounting for all of the assets within it.

 

An investor’s risk is represented by a number between 1 (lower risk) and 10 (high risk) on their user page. This is their Risk Score. This number reflects their portfolio’s maximum volatility as a range of percentages:

 

This percentage range is based on the standard deviation of that investor’s assets. Simply put, it provides an aggregated and weighted measure of the portfolio’s change in gains or losses over time. 

 

Note, if you see a score as “0” it means the users portfolio is 100% cash and therefore has zero volatility.

 

There are many factors that can influence an investor’s risk. You can click here to learn more about risk.

 

Volatility

The more volatile the individual assets making up an investor’s portfolio, the higher the risk.

 

Diversity 

A portfolio with more diversified assets may have less risk as it may include individual assets that are less volatile. Furthermore, if the asset mix has inverse correlations this also reduces the risk of a portfolio. For example, if the portfolio contains both oil and airline stocks: often when the price of oil goes up, airline stock values go down (and vice versa), that portfolio’s risk may be lower.

 

Leveraged ETFs**

Investments in leveraged ETFs can be highly volatile and add to a portfolio’s risk. Click here to learn more. 

 

It is important to note, risk is a historical measure and thus, may not be indicative of future performance. It is not investment advice. 

 

*TBanque uses publicly-available market information as well as standard mathematical principles to generate a risk number for each user. This is not our rating of the user, their success, or how much we think they would be a good fit for you. Rather, this is just an additional educational resource based on objective and mathematical criteria.

**Leveraged ETFs involve increased risk. Leveraged ETFs track assets and try to multiply their returns. For example, if a 2x leveraged ETF were to increase in value, that increase would be double an identical, non-leveraged ETF. However, if that 2x leveraged ETF decreases in value, that decrease will double, too. 

They're short-term products and are not appropriate for all investors.

An inverse ETF is made up of various derivatives to profit from a decline. They're designed to make money when the underlying index or market goes down. They may not be appropriate for all investors.