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Duration: 6:57

Instructor:

Contributor: Interactive Brokers

Level: Intermediate

IB’s Risk Navigator is a sophisticated portfolio monitoring tool allowing investors and portfolio managers to measure existing positions across all asset classes. The Risk Navigator measures exposure according to currency and commonly-used Greek metrics that common-size risk by delta and gamma. This lesson will introduce the Risk Navigator and show how it can be used to create what-if views, enabling clients to check in advance the impact of adding, removing or hedging some or all parts of a portfolio.

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Study Notes:

IB’s Risk Navigator is a sophisticated portfolio monitoring tool allowing investors and portfolio managers to measure existing positions across all asset classes. The Risk Navigator measures exposure according to currency and commonly-used Greek metrics that common-size risk by delta and gamma.

Equity portfolio managers can use its advanced beta analysis to build their portfolios based on key concepts of the Capital Asset Pricing Model.

In addition the Risk Navigator can be used to create what-if views, enabling clients to check in advance the impact of adding, removing or hedging some or all parts of a portfolio.

In the Classic TWS interface, from the Analytical Tools dropdown menu select the Risk Navigator tree. Here you can open your existing portfolio or create a what-if model or access previously saved portfolios.

To access the Risk Navigator in Mosaic, use the blue New Window button and from the Advanced Trading Tools section, locate Risk Navigator and open My Portfolio. Upon opening, you will be prompted to select a trader personality.

Choose between three alternatives that best fit your trading style. The default Risk Navigator display differs for each of these designs. Select from Derivatives, Equity Hedged or Equity Long/Short. Note the different column display across the top of the page if you select and change the display from the Reports menu.

If you trade options, for example, the Derivatives report will be more familiar given the number of Greek metrics shown by default to monitor risk. Because there is a lot of data, let’s divide the default screen into pieces to help you better navigate.

First is the Report Table, which displays positions, prices, live P&L values along with any values displayed under each column heading. Each underlying on the left has a blue plus expand button, which, when clicked, will reveal another layer of information about the asset. And while the columns are preset by the report designer, you may add or remove columns via the Dimensions or Metrics menu; the report designer or moving the mouse over the column header or just a right-click on any header.

You can see the aggregate P&L graph for your positions in the P&L Plot Viewer. By default it is populated by base scenarios constructed based on the previous closing prices, to populate the P&L plot viewer with the most recent curves, click the Update button.

The default view shows expected P&L change for the portfolio assuming equal percentage price changes for all underlyings, but if you enable beta weighted analysis than it can display the expected P&L of your portfolio versus a reference index.

Click-right on the plot viewer to reveal a menu of items you can add to the display. Users can plot vertical columns to help mark +/- percentage moves from current. You can add a 99.5% confidence interval or overlay additional P&L values assuming 15% changes in implied volatility. You can also pickup a vertical crosshair to inspect expected changes to your portfolio for a given move in either the reference index or underlying security.

And you may also view the P&L curve as of the prior close. The display may be controlled from the Navigation area to the right. For example, from the report menu, users may choose various report from Risk by Underlying, Portfolio, Risk by Industry, Risk by Country and so on. Here, you can also change the display in the report table above as well as what is plotted in the window. Users can also isolate individual subsets of their portfolio based on the filter drop downs located in this navigation area.

For example, by selecting an Underlying from the Underlying dropdown menu. Use the dropdown arrow to drive the report’s content or type in the field to restrict its content. Notice that the choice here drives what appears in the report and in the plot viewer. You should also be aware that you will only see an aggregate measure for All Underlyings when the report Viewer is set to Risk by Underlying.

Finally, the Dashboard at the top provides a snapshot display of critical risk information aggregated across the portfolio. You can see net liquidation and P&L for the day as well as margin values required to support the portfolio. You will also see readings for value at risk or VAR and expected shortfall. If you enabled the beta weighted analysis via the Settings menu then the Risk Navigator will also automatically calculate your average beta and your portfolio beta in the dashboard.

Above the Report table is a series of tabs. You can see various asset classes listed as Product Category Tabs, while to the right are Portfolio report tabs – P&L, Value At Risk and Margin Sensitivity. Your entire portfolio is broken out onto one of the Product tabs. The Product Category tabs report on the portfolio in its entirety.

You will see positions related to any cash contract class on the Forex tab; Commodity and Commodity Index related positions are listed on Commodity tab; Financial index and fixed income related derivative positions go to the Money Market tab; Structured Products are listed on their own tab; See the Bond tab for corporate, government and municipal bond positions. All non-bond positions that cannot be clearly categorized into other tabs are put into Equity tab.

Use the live P&L tab for a snapshot of unrealized and daily P&L for the day defined by respective asset classes. This tab provides an overview of your aggregated P&L for your entire portfolio. Click-right on the P&L for day column, hover over ‘insert a column’ and select any of the raw or percentage realized, unrealized or mark-to-market P&L readings for month or year-to-date.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or click here. Multiple leg strategies, including spreads, will incur multiple commission charges.

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