Chapters in Portfolio & Risk Management
Chapter 3 of 6 · 7 min read
Risk metrics: volatility, drawdown, VaR, beta and Sharpe
What each number measures, in plain language, and how to read them for your own book.
The metrics
- Volatility: how much returns swing; the annualised standard deviation.
- Maximum drawdown: the biggest fall from a peak to a trough.
- Value at Risk (VaR): an estimate of the loss not expected to be exceeded on a typical day at a stated confidence level.
- Beta: sensitivity to the market; 1.2 means about 20% more movement than the benchmark.
- Sharpe ratio: return above the risk-free rate per unit of volatility.
Using them
Drawdown is the number that tests your nerve: ask whether you would hold through a fall of that size. VaR describes normal days and can understate extreme ones. Every metric depends on its lookback window and data.
Key takeaways
- Look at drawdown first; it is the emotional risk.
- VaR and volatility understate tail events.
- Sharpe compares risk-adjusted return across portfolios.
Put it into practice
Open the live page on Market Intelligence and see this concept on real data.
Keep learning
- Attribution and factor exposure · Portfolio & Risk Management
Education only, not investment advice. Updated 2026-10-09.