RightCapital's Risk Module and client-specific Risk Analysis use a proprietary risk scoring system to assess the risk of a client's portfolio and various assets. This article will provide additional details on how scores are calculated, to help you better understand and interpret the results.
In general, risk scores in RightCapital are calculated on a scale of 1-100, where 1 is low risk and 100 is high risk. RightCapital's risk tools will automatically calculate a risk score for things like the client's current portfolio, all of your model portfolios, and individual asset classes:
These scores are calculated using a proprietary index created by RightCapital. This index incorporates a combination of statistical and financial metrics such as the volatility of each asset class, diversification across asset classes, and historical return assumptions based on past return performance.
This proprietary index is used to map the standard deviation of a particular asset to a corresponding RightCapital risk score. Please reference the chart below for a series of benchmarks that demonstrate how standard deviation translates to risk score:
Standard Deviation (%) | Risk Score (1-100) |
|---|---|
0% | 1 |
3% | 25 |
8% | 50 |
13% | 75 |
If you have Custom Asset Classes enabled, making adjustments to the standard deviation of one or more asset classes will result in changes to your portfolio and account risk scores.
Risk scores will also vary slightly depending on your selected Model Type in the Assumptions > Misc tab of your Advisor Portal, which slightly alters the standard deviation of each asset class.
For more information on manually assigned Household Risk Scores, as well as Risk Assessment Scores for questionnaires, please use the hyperlinks below:
