Risk cloud

How does the risk cloud work

One way to analyse risk and return of your portfolio is the risk cloud. You can use the risk cloud when creating or adjusting a portfolio in the portfolio builder. For existing portfolios, you can find the risk cloud on the dashboard under “Risk”.
 
Go to portfolio risk cloud:
Portfolio Overview > Dashboard > Risk
 

Risk return chart

The risk return chart visualises risk and return for your asset allocation over a specified time period.

 

Size of the bubbles depends on portfolio weight

Size of the bubbles depends on portfolio weight
Every bubble represents a position in your portfolio. The largest bubble, coloured in dark blue, represents your total portfolio.

justETF has assigned a different colour to every asset class. This helps you to differentiate between your portfolio components by asset classes. You may change the colour scheme of the risk return chart by clicking on the “change colour scheme” button.
 
    = Your portfolio
    = Bonds
    = Commodities
    = Equity
    = Real estate
    = Money market
    = Precious metals

The bubble shows the annualised return (on the vertical axis) and the annualised volatility (on the horizontal axis) of an ETF.

You may identify risk and return of a position by hovering over the bubble with your cursor. Size of the bubbles is proportional to the weight in your portfolio.

 

Select time frame

Either select a predefined time frame or tailor it to your needs.

Select time frame
 

Return: Annualised return

The risk cloud shows you the annualised return. For example, if your portfolio has an annualised return of 5% over a 5 year time frame, then your portfolio return, given current asset allocation, amounted to 5% per year. However, this does not imply that your performance has been constant over time! There may have been large deviations averaging to 5% per year. Return does not give you any information about the volatility of your performance.

In order to get an idea of how much your return varies, a second important figure needs to be considered: Risk. This is where the risk cloud comes into action. You can compare risk and return characteristics of different positions. You can analyse how different asset classes interact to average at your portfolio performance. Weak or even negative correlation between asset classes can result in a significant reduction of portfolio risk.

 

How annualised return is calculated

How annualised return is calculated
 

Risk: Annualised volatility

Annualised volatility indicates the fluctuation of your positions in the past. Higher volatility means higher fluctuation which results in higher risk. It is important to note that volatility includes both upward and downward deviations. For instance, if portfolio risk has been 10% for a period of 5 years, this means that the average annual deviation, positive and negative, from the average annualised return has been 10%.

 

How annualised volatility is calculated

How annualised volatility is calculated
 

Risk cloud in the ETF screener

You may also analyse risk and return of single ETFs in the risk cloud when using the ETF screener. In this case, the size of the bubbles refers to the fund size.

Go to risk cloud in the ETF screener

Risk cloud in the ETF screener
 
 
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