Portfolio Risk Metrics

Why Risk Metrics Matter

Returns tell you how much money you made. Risk metrics tell you how much danger you took to make it. Two portfolios can both return 15% — but if one did it with steady, consistent gains while the other swung wildly between +30% and -20%, they are fundamentally different investments.

Risk metrics help you answer the questions that actually determine investing success: Are you being compensated for the risk you're taking? Could you achieve the same return with less volatility? How bad could things get in a downturn?

Professional fund managers never evaluate performance without risk-adjusted context. The metrics below give you the same analytical framework — whether you're managing $10,000 or $10 million.

How These Metrics Work Together

No single metric tells the whole story. Each captures a different dimension of risk, and the most informed investors use them in combination:

• •Standard deviation provides the raw volatility number — it feeds directly into the Sharpe ratio formula and Value at Risk calculations
• •Sharpe ratio tells you if the volatility is worth it — are you earning enough excess return per unit of risk?
• •Sortino ratio refines this by asking: is the downside volatility worth it? It ignores welcome upside moves
• •Beta separates market risk from stock-specific risk — how much of your volatility comes from the market itself?
• •Max drawdown grounds everything in reality — regardless of ratios and statistics, how bad did it actually get?
• •Value at Risk looks forward — given current volatility, what's the worst loss you should expect in a given period?

Together, these metrics form a complete risk picture: how volatile is the portfolio (standard deviation), is the volatility rewarded (Sharpe/Sortino), where does the risk come from (beta), how bad could it get (VaR/max drawdown). Portfolio Genius calculates all of them automatically.