A New Approach to Better Communicate and Visualize Diversification and Risk
Investor Analytics LLC, a global leader in risk analysis and risk management solutions, announces today the launch of VisualVaR™ – a new approach in communicating Risk using intuitive visual diagrams that explicitly reveal the amount of diversification in a portfolio. The patent pending approach will become part of IA's overall suite of risk transparency services, and has been made accessible on a complimentary basis for those interested in seeing how risk adds in a simulated portfolio. VisualVaR will enable allocators, fund managers and the financial industry-at-large to visually comprehend the diversification dynamics of their portfolios while providing better transparency and more intuitive and effective Risk communication. Investor Analytics has released a White paper detailing the approach.
Damian Handzy, Chairman and CEO of Investor Analytics said, "We are excited that this new visual approach will assist investors and fund managers in better understanding their portfolio's Risk. VisualVaR was designed with the specific goal of fostering more simple and intuitive conversations about Risk and Diversification."
VisualVaR takes advantage of a useful geometric interpretation of the industry standard 'Value-at-Risk' (VaR) measure which shows how the risks of two parts of a portfolio interact and add together to the total portfolio risk. Risk does not add linearly: a portfolio's total risk is not the sum of its parts due to diversification, and VisualVaR is designed to shows how those risks actually do add together.
Michael Poisson, Managing Director added, "VisualVaR enables allocators to better understand their existing portfolio, while individual managers will be able to demonstrate their overall improvement to an allocator's portfolio. Additionally, this unique approach encourages more fluid and effective Risk communication within the investment community and among industry participants."
VisualVaR effectively demonstrates how every part of the portfolio contributes to (or hedges) the total risk; how a hypothetical investment would affect the risk profile of an existing portfolio; and how risks add in practice. This same approach can also be applied to three different types of stress tests including: stressing allocation, volatilities and correlations.
In sum, VisualVaR shows the amount of diversification and allows investment and financial professionals to communicate their risk more intuitively and effectively.