InsidersTradesSigma
Performance & Risk Metrics
Value at Risk computed under hypothetical stressed market conditions or historical crisis scenarios rather than normal market parameters, designed to capture tail risk exposure during extreme volatility regimes.
Stress VaR applies the volatility and correlation conditions observed during documented crises, such as 2008 or the March 2020 COVID crash, to today's portfolio. Rather than assuming a stable distribution, it replays a real period of market stress to ask: how would this book have done if that crisis hit again now? It deliberately captures the correlation breakdowns that calm-period VaR misses.
Its main weakness is that it can only replay crises that have already happened. A portfolio engineered to survive 2008 may still be exposed to a shock of a shape the historical record has never produced, so Stress VaR is best read as a floor on plausible bad outcomes, not a ceiling.