Overview of Nexxore's mathematical risk management methodology, including Sharpe Ratio optimization, Value at Risk (VaR), Conditional Value at Risk (CVaR), and drawdown controls.
Nexxore differentiates itself through rigorous quantitative risk management. Every strategy is optimized not just for returns, but for risk-adjusted returns. The Risk Agent continuously monitors all positions and enforces strict limits.
Core Risk Metrics
Metric
Purpose
Nexxore Target
Downside-adjusted returns
Expected loss in tail events
The Sharpe Ratio measures risk-adjusted returns, ensuring that returns justify the volatility taken.
S h a r p e = R p − R f σ p Sharpe = \frac{R_p - R_f}{\sigma_p} S ha r p e = σ p R p − R f
Where:
$\sigma_p$ = Portfolio volatility (standard deviation)
Sharpe Ratio
Quality
Action
Nexxore Target: All strategies must maintain Sharpe > 2.0
Unlike Sharpe, Sortino only penalizes downside volatility, making it more relevant for asymmetric return profiles.
S o r t i n o = R p − R f σ d Sortino = \frac{R_p - R_f}{\sigma_d} S or t in o = σ d R p − R f
Where: $\sigma_d$ = Downside deviation (volatility of negative returns only)
Symmetric return distributions
Strategies with positive skew, options-based approaches
Nexxore uses both metrics for comprehensive risk assessment.
Value at Risk (VaR)
VaR measures the maximum expected loss over a given time period at a specified confidence level.
"With 95% confidence, we will NOT lose more than X% over the specified time period."
VaR (95%, 1 day) = -2.1%
5% of days: Loss > 2.1% (tail risk)
VaR tells you the threshold but not what happens beyond it. This is why Nexxore primarily uses CVaR.
Conditional Value at Risk (CVaR)
CVaR (also called Expected Shortfall) measures the average loss in the tail—what happens when things go wrong.
C V a R α = E [ L ∣ L ≥ V a R α ] CVaR_{\alpha} = E[L | L \ge VaR_{\alpha}] C Va R α = E [ L ∣ L ≥ Va R α ]
"Loss won't exceed X, 95% of the time"
"When losses DO exceed X, expect Y on average"
CVaR is more conservative and captures tail risk better. Nexxore uses CVaR as the primary risk constraint.
Risk Agent CVaR Enforcement
The Risk Agent monitors CVaR continuously:
CVaR approaching limit (80%)
Reduce new position sizes
Halt trading, force hedge
Maximum Drawdown
Maximum Drawdown (MDD) measures the largest peak-to-trough decline in portfolio value.
M D D = T r o u g h − P e a k P e a k × 100 % MDD = \frac{Trough - Peak}{Peak} \times 100\% M DD = P e ak T ro ug h − P e ak × 100%
Drawdown Limits by Strategy
Strategy Type
Max Drawdown
Recovery Time Target
Beta & Correlation
Beta measures systematic risk—how much the portfolio moves relative to the market.
β p = C o v ( R p , R m ) V a r ( R m ) \beta_p = \frac{Cov(R_p, R_m)}{Var(R_m)} β p = Va r ( R m ) C o v ( R p , R m )
More volatile than market
Less volatile than market
Nexxore Targets
Strategy
APY
Volatility
Sharpe
Max DD
CVaR
Historical average, highly variable
Key Insight: Higher returns ≠ better risk-adjusted returns. The DN Yield strategy has the best Sharpe despite lower APY.
Risk Agent Implementation
The Risk Agent continuously monitors all metrics and takes automated action.
Monitoring Frequency
Log alert, notify manager
Reduce position sizes 50%, tighten stops
Halt new positions, force hedge, emergency alert
Nexxore's risk framework ensures that all strategies maintain institutional-grade risk management:
Sharpe > 2.0 — Returns must justify volatility
CVaR-based limits — Tail risk is actively managed
Continuous monitoring — Every block, every position
Automated enforcement — No human bottleneck in risk management
Last updated 17 hours ago