How is your Risk Number calculated?
The Risk Number is a proprietary scaled index developed by Riskalyze to reflect a “risk score” for both an investor’s unique Risk Fingerprint, or for a specific portfolio of investments.
A Risk Score mimics a speed limit sign, so a higher Risk Number means a higher level of risk and potential return.An investor’s Risk Fingerprint is a multi-dimensional variable reflecting the complexity of an individual investor’s risk tolerance. On the other hand, the Risk Number is a single-dimension variable designed to approximate the relative risk between people or portfolios. Thus, a “45” portfolio generally has more risk than a “44,” but two “45” portfolios may be quite different from each other.
One of the most important drivers of the Risk Number is the measurement of downside risk: either the downside risk in the investor’s comfort zone (the range of risk to reward that they approve via risk questionnaire or Risk Target), or the downside risk in a portfolio as measured by the 95% probability range.
