DEFINITION: A metric describing the amount you can expect to lose on an investment on your worst day in an average month. Equal to an asset’s 95% value-at-risk.
Graphic describing how to read a dScore in the Finiac app.
When you’re considering whether or not to invest in a particular asset, it’s important to know exactly how much you’re putting on the line. dScore is a quick, easy way to understand what the experience of owning that asset will be like.
🔗 Finiac’s asset detail pages provide a dScore for every asset in our database. A few examples: $AAPL, $AMZN, $NKE, $AZO
dScore can be calculated on any asset whose value changes over time—for example, a stock, an ETF, or a portfolio. In Finiac, we often pair dScore with Risk Efficiency to give a better picture of your real-world risk.
More details below 👇
How we calculate dScore
dScore, statistically speaking, is equivalent to 95% value-at-risk. There three ways to calculate value-at-risk: the historical method, the covariance method, and with a Monte Carlo simulation.
We’re using the historical method, which is actually quite straightforward:
First, we compile the daily returns for a given asset over the last year (in %).
Each calendar year has about 250 trading days, so that’s the dataset we’re working with.
We arrange those 250 daily returns from worst to best.
We identify the position 5% up from the absolute worst day
In the given set of 250, that’s the 12th worst day.
Therefore, dScore = the 12th-worst day in the past year.
Why dScore matters
We talk a lot about “risk” at Finiac, but that can feel kind of abstract. dScore is helps bring you back to earth.
Let’s say your portfolio is worth $5,000.
You open the portfolio in Finiac, and find that its dScore is 4.08%.
That means that, in any given month, you should expect at least one day where you’re down $204 (because $5,000 x 4.08% = $204).
Now: ask yourself how you feel about that number. If you say:
“I’d hate to ever be down that much on a single day.” Probably time to ease back. Rebalance your portfolio toward lower-volatility assets.
“That’s not too bad. It wouldn’t freak me out.”
You’ve got some headroom to explore more volatile assets, if you like.
“That hurts, but I get it. It feels like a comfortable risk for me.”
You’re in good shape. Carry on.
🤫 The “d” in “dScore” is short for “damn!” As in, “Damn, that hurts!”
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