How does etoro calculate and present risk?

The risk score is a key feature offered by etoro that enables you to manage your risk when considering copying other investors or investing via Smart Portfolios.

Risk data on investor profiles is not currently available in the etoro AI app, as profiles now appear as a single scrolling page. The risk score is still shown for Smart Portfolios. To view the risk score on an investor's profile, please use the etoro app or the web version of etoro. 

The risk score is a number between 1 (extremely low risk) and 10 (extremely high risk) that appears on an investor or Smart Portfolio's stats page. It presents the overall risk of investing in a portfolio, accounting for all of the assets within it.

Generally, investors use risk to measure an investment’s historical performance to better evaluate its potential gains and losses in the future.

This is commonly done by measuring the standard deviation of an investment’s value. This measurement indicates how sharply the value of that investment changes over time. The sharper the deviation, up or down, the more volatile the investment and the riskier it may be considered.

The risk score reflects a portfolio’s maximum volatility as a range of percentages:

| | |
| --- | --- |
| Risk Score | Maximum portfolio volatility |
| 1 | 0.5% |
| 2 | 1.2% |
| 3 | 2.0% |
| 4 | 2.7% |
| 5 | 3.9% |
| 6 | 5.4% |
| 7 | 7.7% |
| 8 | 15.5% |
| 9 | 23.3% |
| 10 | >23.3% |

This percentage range is based on the standard deviation of the portfolio’s assets. Simply put, it provides an aggregated and weighted measure of the portfolio’s change in gains or losses over time.

Note, if you see a score of 0, it means the portfolio is 100% cash and therefore has zero volatility.

etoro uses publicly available market information as well as standard mathematical principles to generate the risk score. This is not our rating of the portfolio, its success, or how much we think it would be a good fit for you. The risk score is just an additional educational resource based on objective and mathematical criteria.

There are many factors that can influence a portfolio’s risk.

• Volatility: The more volatile the individual assets making up a portfolio, the higher the risk.
• Diversity: A portfolio with more diversified assets may have less risk as it may include individual assets that are less volatile. Furthermore, if the asset mix has inverse correlations this also reduces the risk of a portfolio. For example, if a portfolio contains both oil and airline stocks, its risk may be lower: often when the price of oil goes up, airline stock values go down (and vice versa).
• Leveraged ETFs: Investments in leveraged ETFs can be highly volatile and add to a portfolio’s risk. Leveraged ETFs track assets and try to multiply their returns. For example, if a 2x leveraged ETF were to increase in value, that increase would be double an identical, non-leveraged ETF. However, if that 2x leveraged ETF decreases in value, that decrease will double, too. Leveraged ETFs are short-term products and are not appropriate for all investors.
• Inverse ETFs: Inverse ETFs may involve increased risk. An inverse ETF is made up of various derivatives to profit from a decline. It is designed to make money when the underlying index or market goes down. An ETF can be both inverse and leveraged. Inverse ETFs may not be appropriate for all investors.

Risk is a historical measure and thus, may not be indicative of future performance. It is not investment advice.

The Financial Industry Regulatory Authority (FINRA) has more information on its website:

• Risk
• The Lowdown on Leveraged and Inverse Exchange-Traded Products