Risk of Ruin Calculator
Anyone who invests strategically and with a focus on sustainability comes into contact with the topic of risk management at an early stage. Given that every form of investment is based on an expectation of profit, it is all the more important to be able to determine the opposite side, i.e. the risk of loss. In particular, the "tipping point", which allows the "way of no return" to be predicted with some degree of certainty. It is even more important to be able to draw conclusions as to whether a strategic approach can work at all than can be classified as promising under the aspect of risk vs. opportunity.
Risk of ruin' (RoR) is an indicator of the likelihood that a strategy will lead to a situation in which it is no longer possible to offset previously realized losses with profits or to reverse the situation.
The Risk of Ruin is a challenge within probability theory. It can be solved to a certain degree with the laws and formulas of this theory. The approximation to a meaningful value is a complex task that is exponentially dependent on the desired degree of accuracy.
There are different approaches, methods and parameter sets through which a RoR indication can be determined. Provided that the initial values can be determined unambiguously, the amount of the average profit, the amount of the average loss and the profit/loss ratio determined from both elements are related to the invested capital. The maximum acceptable loss, which serves as a reference value for reaching the RoR threshold, is defined.
We currently offer four different methods of calculation. Please feel free to use the system that is best suited for you according to your discretion or the available data.
Currently, you can perform calculations based on four different calculation approaches.
- RoR (Standard) - this is a popular method in the trading community, which is mostly used by experienced traders who have key financial figures permanently present.
- David E. Chamness - this is a RoR calculation that does not specify a profit rate.
- Nauzer J. Balsara / Bred Penfold - this is another alternative calculation system, which is very popular among traders.
- Ralph Vince - this calculation method is considered by many investors to be the most accurate.
Which of the presented calculations best reflects your requirements is based on the parameters available or to be used to determine the RoR. There is no 'right or wrong', because in all cases there are uncertainties due to probabilities. In principle, all methods allow an indication of how profit & loss series can be affected under certain assumptions concerning the occurrence of a worst-case scenario (in our case the RoR).
