Value at Risk (VaR) answers one blunt question: on a normal bad day, how much could I lose? A 1-day 95% VaR of $500 means most days your loss should stay under $500 — and the worst 1-in-20 days could exceed it.
VaR tells you the threshold of the bad tail, not how bad it gets beyond it. A 95% VaR of $330 says nothing about whether the worst 5% of days lose $400 or $4,000 — and those rare huge losses are what wreck accounts. That is why VaR is best read next to maximum drawdown, the actual worst peak-to-trough loss.
On about 95% of days your loss should be smaller than $500, and on the worst roughly 1-in-20 days it could be larger. It is a threshold for a normal bad day, not a worst-case cap.
Because it says nothing about how bad losses beyond the threshold get — the rare, account-wrecking tail — and it assumes the future resembles the past, which fails in crises.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.