Title: What's the difference between a confidence level and a confidence interval in Value at Risk (VaR)?
Headings: Confidence Level and Confidence Interval in Value at Risk (VaR)
Confidence Level and Confidence Interval in Value at Risk (VaR)
Key Takeaways
Value at Risk (VaR)
Confidence Level
Confidence Interval
VaR Portfolio Comparison

Content: What's the difference between a confidence level and a confidence interval in Value at Risk (VaR)? Fundamental Analysis Tools for Fundamental Analysis
Confidence Level and Confidence Interval in Value at Risk (VaR)
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Investopedia
Updated Jul 15, 2020
The value at risk (VaR) uses both the confidence level and confidence interval. A risk manager uses the VaR to monitor and control the risk levels in a company's investment portfolio. VaR is a statistical metric measuring the amount of the maximum potential loss within a specified period with a degree of confidence. The VaR indicates that a company's losses will not exceed a certain amount of dollars over a specified period with a certain percentage of confidence. While confidence level and confidence interval are interconnected and can be part of a risk assessment, they are not exactly alike. Key Takeaways
Value at risk (VaR) is a statistic that quantifies the amount of potential loss that could occur within an investment, a portfolio of investments, or a firm over a specified time period. A VaR assessment helps financial institutions identify high-risk investments and determine the cash reserves they will need to cover potential portfolio losses. The VaR uses both the confidence interval and confidence level to build a risk assessment model. A confidence interval is two set values that probability indicates a parameter will fall between.