The portfolio risk score is useful to align a portfolio risk with a client risk capacity. Both the portfolio risk score and client risk score are values between 0 to 100. The client risk score may be established with a questionnaire.

### How the portfolio risk score is calculated

To calculate a portfolio risk score, Kwanti estimates the portfolio **maximum downside** within a horizon of one year and a 95% confidence. This downside is then mapped to a 0-100 scale.

The mapping from estimated maximum downside to risk score is as follows:

Maximum downside (*) | Risk profile | Risk score |

0 to 3% | Conservative | 1-20 |

3% to 8% | Moderately Conservative | 20-40 |

8% to 15% | Moderate | 40 to 60 |

15 to 30% | Moderately Aggressive | 60 to 80 |

> 30% | Aggressive | 80 to 100 |

(*) with 95% confidence

### 12-month probable range of returns

In addition to the downside, Kwanti also calculates a 95% confidence upside. Observing both the worst case and best case estimates help understanding risk/reward tradeoffs when comparing portfolios.

### Calculating the maximum downside

The maximum downside is a forward estimate. In technical terms, it is the Value at Risk [1] of the portfolio at a confidence level of 95% and a time horizon of one year. The 95% confidence means that there is a 95% chance that the portfolio return will be better than the given downside.

This calculation is based on:

- Volatility and correlations of assets in the portfolio
- Expected returns for assets in the portfolio

[1] Understanding Value at Risk https://www.investopedia.com/terms/v/var.asp