DOCUMENTATION TERMINAL|FEB 27, 2026

Understanding Indicators

A guide to decode risk indicators and make better decisions.

#volatility #max-drawdown #var #moving-averages #correlation #rsi #macd

Risk Indicators

These metrics help you assess the risk level of your portfolio.

Annualized Volatility

Volatility measures the amplitude of your portfolio's variations. The higher the volatility, the larger the price movements (both up and down).

// Formula

σ_annual = σ_daily × √252

where σ_daily is the standard deviation of daily returns (log-returns)

< 15%Low

Stable portfolio, typical of bonds or defensive stocks.

15-30%Moderate

Typical of a diversified stock portfolio.

> 30%High

Significant risk. Typical of cryptocurrencies or speculative stocks.

Max Drawdown (MDD)

Max Drawdown represents the maximum loss suffered between a peak and the following trough. It's the worst decline you would have experienced while staying invested.

// Visualization

Peak (Sommet) ───────── $10,000

╲

Trough (Creux) ────────── $8,500

MDD = (8500 - 10000) / 10000 = -15%

// Formula

MDD = (Trough - Peak) / Peak

Interpretation: A -20% MDD means that if you had invested at the worst time, your portfolio would have lost 20% before recovering. It's a crucial indicator for assessing your risk tolerance.

< -10%

Excellent risk control

-10% à -25%

Acceptable for a stock portfolio

> -25%

High risk, monitor closely

Value at Risk (VaR)

VaR (Value at Risk) estimates the maximum probable loss over a given period, with a specified confidence level. It's a standard risk management tool in finance.

Example: 1-day VaR at 95%

If your 1-day VaR (95%) = -2%, it means that 95% of the time, your daily loss won't exceed 2%. In other words, only 5% of the time (about 1 day in 20), the loss could be greater.

// Historical method

VaR(95%) = Quantile(5%, historical_returns)

We take the 5th percentile of historical returns over the last 250 days.

⚠️ Warning: VaR doesn't predict black swan events (extreme events). The 5% of cases where loss exceeds VaR can be much worse than expected.

VaR 95%

Standard for daily management. 1 day in 20 could exceed this threshold.

VaR 99%

More conservative. 1 day in 100 could exceed this threshold.

Ratio de Sharpe

The Sharpe Ratio measures your portfolio's risk-adjusted performance. It indicates whether your returns justify the volatility taken.

// Formula

Sharpe = (Portfolio Return - Risk Free Rate) / Volatility

< 0.5

Poor - Return doesn't justify the risk.

0.5 - 1.0

Adequate - Performance aligns with risk.

> 1.0

Excellent - Superior risk-adjusted return.

Beta

Beta measures your portfolio's sensitivity relative to the market (S&P 500 benchmark). It is an indicator of systematic risk.

β < 1

Defensive

Moves less than the market (e.g., Gold, Pharma).

β = 1

Market

Moves exactly like the market (Index ETF).

β > 1

Aggressive

Amplifies market movements (e.g., Tech, Crypto).

Correlation Matrix

Correlation measures how two assets move in relation to each other. It is the key to true diversification.

Explore Interactive MatrixNew

Use our interactive tool to visualize how correlation impacts your overall risk.

OPEN GUIDE →

Technical Indicators

Technical analysis tools to identify trends and entry/exit points.

Moving Averages (SMA & EMA)

Moving averages smooth out price action to visualize the overall trend without the "noise" of daily fluctuations. They are fundamental to technical analysis.

SMA (Simple Moving Average)

The classic average. Ideal for identifying long-term trends (e.g., SMA 200). If the price is above, the trend is bullish.

EMA (Exponential Moving Average)

Gives more weight to recent prices. It reacts faster to short-term trend changes (e.g., EMA 12, 26).

RSI (Relative Strength Index)

0-100 Scale

RSI measures the speed and strength of price movements. It identifies if an asset is overvalued or undervalued at any given time.

Above 70 (Overbought) : The stock may have risen too fast. Risk of a downward correction.
Below 30 (Oversold) : The stock may have fallen too low. Potential for an upward bounce.

MACD (Moving Average Convergence Divergence)

The MACD is a trend-following momentum indicator. It shows the relationship between two moving averages (EMA 12 and EMA 26).

MACD Line (Blue)

The difference between EMA 12 and EMA 26.

Signal Line (Orange)

A smoothed average of the MACD (EMA 9).

Histogram

Represents the distance between MACD and Signal. When MACD crosses Signal, the histogram flips (red to green).

Interpretation: When the MACD (blue) crosses above the Signal (orange), it is often interpreted as a buy signal.

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