Risk classification provides a simple 1-5 scale rating based on your portfolio's volatility. Level 1 is most conservative; Level 5 is most aggressive.
Formula
Based on volatility thresholds: <6% = 1, 6-12% = 2, 12-18% = 3, 18-25% = 4, >25% = 5Methodology
Risk classification translates the technical volatility measure into an intuitive 1-5 scale that matches common investment profile questionnaires.
The thresholds are based on historical asset class volatilities: - Level 1 (Conservative): <6% - typical of short-term bonds - Level 2 (Moderate): 6-12% - typical of diversified bond portfolios - Level 3 (Balanced): 12-18% - typical of balanced stock/bond portfolios - Level 4 (Aggressive): 18-25% - typical of equity portfolios - Level 5 (Very Aggressive): >25% - typical of concentrated stock positions
This classification helps match portfolio risk to investor risk tolerance and time horizon.
How to Interpret
| Range | Label | Meaning |
|---|---|---|
| 5 to 6 | Very Aggressive | Maximum growth focus. High volatility expected. Best for long time horizons. |
| 4 to 5 | Aggressive | Prioritizes growth over stability. Expects significant fluctuations. |
| 3 to 4 | Balanced | Equal focus on growth and preservation. Accepts moderate swings. |
| 2 to 3 | Moderate | Balanced toward stability. Some growth potential with limited downside. |
| 1 to 2 | Conservative | Prioritizes capital preservation. Lower returns but minimal volatility. |
Data Source
Derived from portfolio standard deviation using industry-standard volatility ranges.
Reference
Industry Standard (2020). Risk Classification Guidelines. Based on volatility ranges from major wealth management firms
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For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.