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A $50 Million Portfolio Reports a 5% Monthly VaR of $3

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Essay

A $50 million portfolio reports a 5% monthly VaR of $3 million. Explain what this VaR indicates and identify the ramifications for monthly returns over the next five years.


Definitions:

Coefficient Of Correlation

A statistical measure that quantifies the degree to which two variables' movements are associated, ranging from -1 to 1.

COV

Coefficient of Variation, a standardized measure of the dispersion of a probability distribution or frequency distribution.

Bivariate Distribution

A probability distribution describing two random variables and how their probabilities are distributed over different ranges of values.

Variance

A statistical measurement of the spread between numbers in a data set, indicating how far each number in the set is from the mean.

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