This calculator provides a simplified assessment of investment risk based on several key factors.
It aims to give you a general idea of your risk profile, combining objective market data with your subjective
risk tolerance. It's important to note that this is a basic tool and not a substitute for professional financial advice.
How It Works:
The calculator considers the following inputs:
Expected Annual Return (%): The anticipated profit from an investment over a year, expressed as a percentage. Higher expected returns often come with higher risk.
Annual Volatility (Standard Deviation %): This measures how much an investment's returns are likely to fluctuate around its average. Higher volatility indicates greater uncertainty and risk. A standard deviation of 15% means that historically, the investment's returns have typically stayed within about 15% (positive or negative) of the average return 68% of the time.
Investment Horizon (Years): The length of time you plan to keep your money invested. Longer horizons generally allow for recovery from short-term downturns and can accommodate higher risk tolerance.
Personal Risk Tolerance Score: Your subjective comfort level with potential investment losses in exchange for potential higher gains. This is rated on a scale of 1 (very low tolerance) to 5 (very high tolerance).
The Calculation Logic:
The calculator uses a weighted scoring system to determine an overall risk score. The formula is designed to normalize inputs and combine them into a single metric.
Investment Horizon: Weighted at 10% (shorter horizon increases score)
Personal Risk Tolerance: Weighted at 30% (lower tolerance increases score)
The formula uses divisor values (e.g., 20 for return, 30 for volatility) as general benchmarks for normalization. The subtraction for Investment Horizon and Risk Tolerance is done to invert their effect: a shorter horizon or lower tolerance increases the final score, indicating higher perceived risk. The final score is then mapped to a risk level.
Risk Levels:
0 – 2.0: Very Low Risk – Suitable for extremely risk-averse investors prioritizing capital preservation.
2.1 – 3.5: Low Risk – Focuses on stability with modest growth potential.
3.6 – 5.0: Moderate Risk – Seeks a balance between growth and capital preservation.
5.1 – 7.0: High Risk – Aiming for significant growth, with a willingness to accept substantial fluctuations.
7.1 – 10.0: Very High Risk – Aggressive growth strategy, accepting potential for significant losses.
Disclaimer:
This calculator is for informational purposes only and does not constitute financial advice. Investment involves risk, including the potential loss of principal. Consult with a qualified financial advisor before making any investment decisions.
function calculateRisk() {
var potentialReturn = parseFloat(document.getElementById("potentialReturn").value);
var volatility = parseFloat(document.getElementById("volatility").value);
var investmentHorizon = parseFloat(document.getElementById("investmentHorizon").value);
var riskTolerance = parseFloat(document.getElementById("riskTolerance").value);
var resultDiv = document.getElementById("result");
var riskScoreElement = document.getElementById("riskScore");
var riskLevelElement = document.getElementById("riskLevel");
// Input validation
if (isNaN(potentialReturn) || isNaN(volatility) || isNaN(investmentHorizon) || isNaN(riskTolerance)) {
riskScoreElement.innerText = "Invalid input. Please enter valid numbers.";
riskLevelElement.innerText = "";
resultDiv.style.backgroundColor = "#f8d7da"; // Light red for error
resultDiv.style.color = "#721c24";
return;
}
if (potentialReturn < 0 || volatility < 0 || investmentHorizon <= 0 || riskTolerance 5) {
riskScoreElement.innerText = "Invalid input values. Check ranges.";
riskLevelElement.innerText = "";
resultDiv.style.backgroundColor = "#f8d7da"; // Light red for error
resultDiv.style.color = "#721c24";
return;
}
// Risk calculation (example formula – adjust weights and divisors as needed)
// This formula attempts to create a score where higher values mean higher risk.
// We invert the effect of risk tolerance and horizon: lower tolerance or shorter horizon increases the score.
var score = (potentialReturn / 20) * 0.3 +
(volatility / 30) * 0.3 +
(5 – investmentHorizon) * 0.1 + // Shorter horizon adds to score
(6 – riskTolerance) * 0.3; // Lower tolerance adds to score
var riskScore = score.toFixed(2);
var riskLevel = "";
if (riskScore >= 0 && riskScore 2.0 && riskScore 3.5 && riskScore 5.0 && riskScore 7.0 && riskScore <= 10.0) {
riskLevel = "Very High Risk";
} else {
riskLevel = "Score out of range";
}
riskScoreElement.innerText = "Score: " + riskScore;
riskLevelElement.innerText = "Level: " + riskLevel;
// Adjust result box styling based on level (optional, for better UX)
if (riskLevel.includes("Low")) {
resultDiv.style.backgroundColor = "#d4edda"; // Green
resultDiv.style.color = "#155724";
} else if (riskLevel.includes("Moderate")) {
resultDiv.style.backgroundColor = "#fff3cd"; // Yellow
resultDiv.style.color = "#856404";
} else if (riskLevel.includes("High")) {
resultDiv.style.backgroundColor = "#f8d7da"; // Reddish
resultDiv.style.color = "#721c24";
} else {
resultDiv.style.backgroundColor = "#d4edda"; // Default Green for Very Low/High
resultDiv.style.color = "#155724";
}
}