HAWK - Value at Risk (VAR)

The VaR (Value at Risk) Page helps traders assess the potential dollar risk their portfolio carries for a 1-sigma move in the market. It provides a clear picture of the risk exposure associated with Start-of-Day (SOD) positions, helping users understand their risk placement before the trading day begins.

Key Features:

Risk Assessment – Quickly evaluate the dollar risk of your portfolio based on market movements.
Scenario Analysis – Modify the SOD portfolio to see how changes impact overall risk.

For a more detailed explanation, refer to the Portfolio VaR and Custom Portfolio VaR sections.

The in detail description of these can be found at Portfolio VAR and Custom Portfolio VAR sections

Basic Terminology

SOD Risk is the min of the number of the absolute longs and shorts carried by the user in a said Product. For example if a user has in a product X SODs in three contracts A,B,C and the positon sizing is A has 30 lots longs ,B has 80 lots short and C has 20 lots long , then the SODRisk will be

Absolute sum of longs=30=20=50

Absolute sum of shorts=80

SODRisk= Min(50,80)=50

SOD_RT is the ratio of SOD Risk and RT

Rolling Period

It refers to the number of business days used to calculate the standard deviation of returns. It determines the timeframe over which market volatility is measured.

Users can select from 10, 15, or 30-day periods, depending on their analytical needs:

10-day period – Captures short-term volatility trends.
15-day period – Balances short-term and medium-term volatility insights.
30-day period – Provides a broader view of market fluctuations over a longer timeframe.

Choosing the appropriate rolling period helps users tailor their risk analysis to match their trading strategy and market conditions.

Value at Risk(VAR) is a statistical measure used in finance to quantify the potential loss on an investment or portfolio over a specific time horizon, with a specified level of confidence. It is generally defined as Mean + (Z-Score * Standard Deviation)

X = \mu + (Z \cdot \sigma)

But for the futures market we are more interested in the Standard Deviation of the portfolio which we can call as the risk of the portfolio. The VAR is dependent on 2 factors i.e SOD positions and the Market Volatility we calculate using the Settlement Price.

For example ,

Let’s consider the portfolio standard deviation (σp) considering two assets (A and B), where:

Now as we understand, VAR is influenced by two factors:

Position sizing (the positions carried into the market)
Market volatility

VAR_SOD (Constant Position VAR)

In VAR_SOD, the SOD for the selected end date remains constant throughout the time period.
The covariance matrix changes daily, meaning any fluctuations in VAR are due to market movements alone, since the positions remain fixed.
Hence if the VAR_SOD goes up it implies market volatility has gone up and could mean Var could rise even if the positions remain unchanged or even reduced

VAR_COV (Constant Volatility VAR)

In VAR_COV, we do the opposite: the covariance matrix remains constant, while SODs change daily.
Unlike VAR_SOD, where the SOD is fixed at the latest date (e.g., February 20th in the example), in VAR_COV, the covariance matrix is fixed at the earliest selected date (e.g., February 3rd if the range selected is February 3rd–19th).
This adjustment helps account for expiries effectively.
Here, any change in VAR_COV is purely due to position sizing in the market.
Hence if the VAR_COV goes up, it means position sizing has gone up, and could mean Var could rise even is the market volatility is unchanged.. If the Var has gone down despite Var_COV being higher it means, lower market volatility has overshadowed a rise in position.

Hence reading the Var_SOD and Var_COV along with the overall Var will help understand what has contributed to the changes in Var-> changes n market behavious or the MA's position sizing.

Important Tips

Since VaR is calculated using a generic formula, rolls are not accounted for in the analysis. For a more reliable long-term trend, it’s best to break the data into smaller time chunks to ensure accuracy.
Proper planning and analysis with the tool can help in understanding better positioning, anticipation of market moves and overall better risk management.

Portfolio VAR

The Portfolio section provides insights into the Value at Risk (VAR) associated with the portfolio and its trend over time. All key measures discussed in the previous section are available in both tabular and graphical formats for better visualization.

Graph Customization

Users can switch between line charts and scatter plots to better understand the relationships between different risk measures.
A dropdown menu allows easy toggling between these views.

Rolling Period Selection

Users can choose the Rolling Period duration for risk calculations.

Chart Features

In the Scatter view, users can generate scatter plots between any two of the following measures:

VAR
PnL
Equity PnL
Expected Value
SOD Risk
SOD_RT
VAR with constant market volatility (VAR_COV)
VAR with constant SOD Positions (VAR_SOD)

In this section, the user can select the Rolling Period duration for the calculations of the Risk. Also, the dropdown lets you move between the line and scatter option for the charts. In the Line view, users will be able to see scatter plots between any two values from VAR, PnL, Equity PnL, Expected Value, SOD Risk, SOD_RT, VAR with constant market volatility (VAR_COV), and VAR with constant SOD Positions (VAR_SOD).

Product & Contract Selection

At the top of the graphs, users can select a Product and its respective Contract.
The graph will update to show the VAR associated with a 1bp move in the selected contract concerning the overall portfolio.

Data Export Options

Users can download the table data as a CSV file.
There is also an option to copy the displayed data for easy sharing and further analysis.

Custom Portfolio VAR

The Custom Portfolio VAR feature helps users understand the Value at Risk (VAR) for a specific structure, such as a spread, fly, or inter-product strategy. This tool allows users to analyze risk without needing an actual position in the selected contract, making it useful for evaluating potential trades before execution.

Data Representation

The data is displayed in both tabular and graphical formats, similar to the Portfolio VAR section.
If the selected structure involves multiple products, additional columns appear in the table, showing:
1. The VAR for the entire portfolio
2. The VAR of individual contract positions
3. The inter-product price of the structure

Graph Features

The graph provides a clear visual representation of risk and pricing.
It includes:
1. Mean VAR
2. Price line of the structure

Historical SOD Analysis

Clicking on any date in the Portfolio VAR graphs updates the table to display the Start-of-Day (SOD) positions for that day.
This allows users to analyze past SODs and track how positions evolved over time.

This feature enables users to evaluate risk exposure, compare historical data, and make informed trading decisions before entering a position.

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