How much money can you lose by investing in stocks?
Stock price movement has a chaotic element, in the sense that you cannot predict the price movement due to the speculative capital and larger players' unpredictable intents. But you can assign the maximum possible loss your selected stock or stocks can bring you. This measure is called VAR or value at risk. IT defines what could be your maximum possible loss on your stock chosen or loss for your asset portfolio for a given time interval, given a high confidence level of (95 or 99%). First, let me talk about how to calculate a VAR for a single asset, and then I will talk about how to calculate for a portfolio. In this example, I will be talking about stocks, but you can calculate VAR for other financial assets, including FX, Commodities. VAR is not an expected loss of your stock or portfolio. VAR is the maximum possible loss of your stock or portfolio for a given period. VAR calculation for a single stock is straightforward. You indicate your investment volume, the amount y...