What is Projected Risk and Projected Value in the Portfolio Protection Calculator?

The Projected Risk in Adaptive’s Portfolio Protection Calculator is a powerful tool to measure how downside protection can ‘dial down’ the risk of losses in a portfolio, even while staying in the market for expected growth over the long-term.

Projected Risk compares the observed downside volatility of three different portfolios, based on the selected Model Portfolio:

  • Market Risk. Measure of the observed downside volatility of the S&P 500 index. It is in effect a portfolio made up entirely of the S&P 500. Read more about the S&P 500 at WikipediaInvestopedia, and S&P Dow Jones Indices.
  • Portfolio Risk. Measure of the observed downside volatility of the selected Model Portfolio. Model Portfolios which are diversified among asset classes, such as bonds in addition to stocks, tend to have lower observed downside volatility compared to Adaptive’s measure of Market Risk.
  • Protected Portfolio Risk. This reflects the reduced downside risk of the portfolio, with the selected Protection Level. Increasing the Protection Level—in effect adding more protection— for example from ‘80%’ to ‘90%’ will tend to ‘dial down’ the Protected Portfolio Risk as more protection is added.

Adaptive currently uses an absolute scale for characterized Risk, based on the Risk Weather definition:

 

Projected Risk VIX Range Notes
Low 0 to 15 VIX 15 is Medium
Medium 15 to 20 VIX 20 is High
High 20 to 30 VIX 30 is Very High
Very High 30 or Greater  

 

The Projected Value shows possible outcomes for the selected Model Portfolio based on the selected Protection Period, with the selected Protection Level also displayed as Potential Losses. The top and bottom projections represent the least likely outcomes, calculated as likely to occur only three in 1,000 times (three standard deviations).