Trade Risk

# Risk Assessment: <TICKER> — <COMPANY NAME>

**Generated:** <current date and time>
**Current Price:** $<price> | **Market Cap:** $<cap>

> **DISCLAIMER:** This is for educational and research purposes only. Not financial advice. Always do your own due diligence.

---

## Risk Score: <SCORE>/100 — <RATING>

<1-2 sentence summary of the overall risk profile. E.g., "AAPL presents a moderate risk profile driven by strong liquidity and financial health, partially offset by elevated valuation and macro sensitivity.">

### Component Breakdown
| Component | Score | Weight | Weighted | Key Driver |
|-----------|-------|--------|----------|------------|
| Volatility | <X>/100 | 20% | <calc> | <1-line reason> |
| Drawdown Resilience | <X>/100 | 15% | <calc> | <1-line reason> |
| Liquidity | <X>/100 | 20% | <calc> | <1-line reason> |
| Financial Health | <X>/100 | 20% | <calc> | <1-line reason> |
| Correlation/Diversification | <X>/100 | 10% | <calc> | <1-line reason> |
| Event Risk | <X>/100 | 15% | <calc> | <1-line reason> |
| **COMPOSITE** | | **100%** | **<SCORE>/100** | |

---

## 1. Volatility Analysis

### Key Metrics
| Metric | Value | Interpretation |
|--------|-------|----------------|
| Beta (vs S&P 500) | <X> | <e.g., "Moves 1.3x the market — moderately aggressive"> |
| 14-Day ATR | $<X> (<X%>) | <e.g., "Average daily range of $2.50 (1.4%)"> |
| 30-Day Historical Volatility | <X%> (annualized) | <vs sector average> |
| 60-Day Historical Volatility | <X%> (annualized) | <trend: rising/falling/stable> |
| Implied Volatility (30-day) | <X%> | <vs HV: premium/discount of X%> |
| IV Rank (52-week) | <X%> | <e.g., "Current IV is higher than 65% of readings this year"> |
| Average Daily Move | <X%> | <e.g., "Typical day moves +/- 1.8%"> |

### Volatility Assessment
<2-3 sentences interpreting the volatility picture. Is volatility elevated or compressed? Is IV pricing in an upcoming event? How does current vol compare to its historical range?>

### Volatility-Based Stop Loss Levels
| Method | Stop Distance | Stop Price | Notes |
|--------|--------------|------------|-------|
| 1x ATR | $<X> | $<price> | Tight — will get stopped often |
| 2x ATR | $<X> | $<price> | Standard — balances noise vs protection |
| 3x ATR | $<X> | $<price> | Wide — only for high-conviction positions |

---

## 2. Maximum Drawdown Scenarios

### Historical Drawdowns
| Period | Trigger | Max Drawdown | Recovery Time |
|--------|---------|-------------|---------------|
| <date range> | <event> | -<X%> | <X months> |
| <date range> | <event> | -<X%> | <X months> |
| <date range> | <event> | -<X%> | <X months> |
| All-Time Max | <event> | -<X%> | <X months> |

### Stress Test Scenarios
| Scenario | Estimated Drawdown | Price Level | Probability |
|----------|-------------------|-------------|-------------|
| Mild correction (market -10%) | -<X%> | $<price> | Medium |
| Bear market (market -20%) | -<X%> | $<price> | Low-Medium |
| Severe crash (market -35%) | -<X%> | $<price> | Low |
| Company-specific crisis | -<X%> | $<price> | Low |
| Black swan (worst case) | -<X%> | $<price> | Very Low |

### Drawdown Assessment
<2-3 sentences. How has this stock historically behaved in down markets? Does it fall more or less than the market? How quickly does it recover?>

---

## 3. Correlation Analysis

### Correlation Matrix
| Asset | Correlation | Interpretation |
|-------|------------|----------------|
| S&P 500 (SPY) | <X> | <e.g., "Highly correlated — moves with the broad market"> |
| Sector ETF (<XLX>) | <X> | <e.g., "Strongly tied to sector trends"> |
| Nasdaq 100 (QQQ) | <X> | <interpretation> |
| 10-Year Treasury (TLT) | <X> | <e.g., "Negative correlation — benefits from falling rates"> |
| VIX | <X> | <e.g., "Negative — sells off when fear spikes"> |
| Gold (GLD) | <X> | <interpretation> |
| US Dollar (UUP) | <X> | <interpretation> |

### Diversification Value
<2-3 sentences. Does this stock add diversification to a typical portfolio? Or does it just add more of the same market exposure? Which macro factors drive it most?>

---

## 4. Liquidity Risk

### Liquidity Metrics
| Metric | Value | Rating |
|--------|-------|--------|
| Average Daily Volume (30-day) | <X shares> | <Excellent/Good/Fair/Poor> |
| Average Dollar Volume | $<X>M/day | <rating> |
| Market Cap | $<X>B | <Large/Mid/Small/Micro> |
| Float | <X>M shares (<X%> of outstanding) | <rating> |
| Short Interest | <X>M shares (<X%> of float) | <e.g., "Elevated — potential squeeze or downside pressure"> |
| Days to Cover | <X days> | <rating> |
| Typical Bid-Ask Spread | $<X> (<X%>) | <rating> |
| Options Liquidity | <Available / Limited / None> | <rating> |

### Slippage Estimates
| Order Size | Est. Slippage | Effective Cost |
|------------|--------------|----------------|
| $1,000 | <X%> | <$X> |
| $10,000 | <X%> | <$X> |
| $50,000 | <X%> | <$X> |
| $100,000 | <X%> | <$X> |

### Liquidity Assessment
<2-3 sentences. Can you enter and exit this stock easily? Are there any liquidity concerns? What order types should be used?>

---

## 5. Position Sizing Calculator

### Method 1: Fixed Percentage Risk (Standard)
Risk a fixed percentage of account equity per trade.

**Formula:** Position Size = (Account x Risk%) / (Entry - Stop Loss)

| Account Size | 1% Risk | 2% Risk | 3% Risk |
|-------------|---------|---------|---------|
| $10,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |
| $25,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |
| $50,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |
| $100,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |
| $250,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |

*Based on entry at $<current price> and stop loss at $<2x ATR stop>.*

### Method 2: Volatility-Adjusted (ATR-Based)
Normalizes position size by volatility so each trade carries similar dollar risk.

**Formula:** Shares = (Account x Risk%) / (ATR x Multiplier)

| Account Size | 1x ATR | 2x ATR | 3x ATR |
|-------------|--------|--------|--------|
| $50,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |
| $100,000 | <X shares ($X)> | <X shares ($X)> | <X shares ($X)> |

*Using 14-day ATR of $<X> and 2% account risk.*

### Method 3: Kelly Criterion (Theoretical Optimal)
Calculates the theoretically optimal bet size based on edge and odds.

**Formula:** Kelly % = W - [(1-W) / R]
- W (win rate) = <X%> (based on historical setup success rate or analyst consensus accuracy)
- R (reward/risk ratio) = <X>:1 (based on target/stop ratio)
- **Full Kelly:** <X%> of account
- **Half Kelly (recommended):** <X%> of account
- **Quarter Kelly (conservative):** <X%> of account

> **Note:** Full Kelly is extremely aggressive. Most practitioners use Half Kelly or less. Kelly assumes accurate probability estimates, which are always uncertain.

### Recommended Position Size
| Risk Profile | Shares | Dollar Value | % of $50K Account | Method |
|-------------|--------|-------------|-------------------|--------|
| Conservative | <X> | $<X> | <X%> | Fixed 1% risk |
| Moderate | <X> | $<X> | <X%> | Fixed 2% risk |
| Aggressive | <X> | $<X> | <X%> | Half Kelly |

---

## 6. Risk/Reward at Current Levels

### Nearest Support & Resistance
| Level | Price | Distance | Type |
|-------|-------|----------|------|
| Resistance 2 | $<price> | +<X%> | <e.g., "52-week high"> |
| Resistance 1 | $<price> | +<X%> | <e.g., "Prior swing high"> |
| **Current Price** | **$<price>** | **—** | |
| Support 1 | $<price> | -<X%> | <e.g., "50-day MA"> |
| Support 2 | $<price> | -<X%> | <e.g., "200-day MA"> |
| Support 3 | $<price> | -<X%> | <e.g., "Major horizontal support"> |

### Risk/Reward Scenarios
| Entry | Stop (Support) | Target (Resistance) | R:R Ratio | Verdict |
|-------|---------------|---------------------|-----------|---------|
| $<current> | $<support 1> | $<resistance 1> | <X>:1 | <Favorable/Unfavorable> |
| $<current> | $<support 2> | $<resistance 2> | <X>:1 | <Favorable/Unfavorable> |
| $<support 1> | $<support 2> | $<resistance 1> | <X>:1 | <Favorable/Unfavorable> |

**Best Entry for Risk/Reward:** <specific price and reasoning>

---

## 7. Value at Risk (VaR) Estimate

### Daily VaR (95% confidence)
- **Parametric VaR:** $<X> (<X%> of position)
- **Interpretation:** On 95% of trading days, the maximum expected loss is $<X> per $10,000 invested.

### Weekly VaR (95% confidence)
- **Parametric VaR:** $<X> (<X%> of position)
- **Calculation:** Daily VaR x sqrt(5)

### Monthly VaR (95% confidence)
- **Parametric VaR:** $<X> (<X%> of position)
- **Calculation:** Daily VaR x sqrt(21)

### Conditional VaR (Expected Shortfall)
- **CVaR (95%):** $<X> (<X%> of position)
- **Interpretation:** When losses exceed the VaR threshold (worst 5% of days), the average loss is $<X> per $10,000 invested.

> **VaR Limitation:** VaR measures normal-condition risk. It does NOT capture tail risk (black swans). Actual losses can and do exceed VaR estimates. Use as one input among many, not as a guarantee.

---

## 8. Risk Flags

<List any specific red flags identified during analysis. Use checkboxes.>

- [ ] **High Short Interest (>10% of float):** <details if applicable>
- [ ] **Earnings Within 14 Days:** <date if applicable>
- [ ] **Insider Selling:** <details if applicable>
- [ ] **Declining Institutional Ownership:** <details if applicable>
- [ ] **High Debt Load (D/E > 2):** <details if applicable>
- [ ] **Low Liquidity (<500K avg volume):** <details if applicable>
- [ ] **Elevated IV (IV Rank > 70%):** <details if applicable>
- [ ] **Pending Litigation/Regulatory Action:** <details if applicable>
- [ ] **Revenue/Customer Concentration:** <details if applicable>
- [ ] **Cash Burn / Negative FCF:** <details if applicable>

**Flags Triggered:** <X>/10
**Flag Assessment:** <e.g., "2 flags triggered — manageable risk with proper sizing" or "5 flags — approach with extreme caution">

---

## 9. Risk Management Recommendations

### For This Stock
1. **Position Sizing:** <specific recommendation based on risk score>
2. **Stop Loss:** <specific level and type>
3. **Hedging:** <e.g., "Consider protective put at $X strike if holding >$50K position" or "No hedging needed for small positions">
4. **Correlation Awareness:** <e.g., "If you already hold XYZ and QQQ, this adds concentrated tech exposure">
5. **Event Calendar:** <e.g., "Reduce position by 50% before earnings on <date> if holding swing trade">
6. **Review Schedule:** <e.g., "Reassess risk weekly during earnings season, monthly otherwise">

### General Risk Rules (Always Apply)
- Never risk more than 2% of total account on a single trade
- Never allocate more than 10% of portfolio to a single position
- Never hold more than 25% in a single sector
- Always have a stop loss defined before entering
- Reduce position size in low-liquidity names
- Reduce position size ahead of binary events (earnings, FDA, etc.)

---

*Generated by AI Trading Analyst — Risk Assessment Engine*
*DISCLAIMER: This is for educational and research purposes only. Not financial advice. Always do your own due diligence and consult a licensed financial advisor before making investment decisions.*

# Example: Position sizing calculation
entry_price = 150.00
stop_loss = 142.00
risk_per_share = entry_price - stop_loss  # $8.00

account_sizes = [10000, 25000, 50000, 100000, 250000]
risk_percentages = [0.01, 0.02, 0.03]

for account in account_sizes:
    for risk_pct in risk_percentages:
        dollar_risk = account * risk_pct
        shares = int(dollar_risk / risk_per_share)
        position_value = shares * entry_price
        print(f"${account:,} at {risk_pct:.0%}: {shares} shares (${position_value:,.0f})")

# Example: VaR calculation
import math
daily_volatility = 0.025  # 2.5% daily std dev
position_value = 10000

daily_var_95 = position_value * daily_volatility * 1.645
weekly_var_95 = daily_var_95 * math.sqrt(5)
monthly_var_95 = daily_var_95 * math.sqrt(21)

print(f"Daily VaR (95%): ${daily_var_95:.2f}")
print(f"Weekly VaR (95%): ${weekly_var_95:.2f}")
print(f"Monthly VaR (95%): ${monthly_var_95:.2f}")