If you are a subscriber to FinaMetrica and HiddenLevers, you can continue to use your FinaMetrica survey while taking advantage of stress testing against a client's loss tolerance. The HiddenLevers loss tolerance score ranges from 5%-50%. This score represents the amount of money a client is willing to lose before needing to see some recovery. It can be thought of as their line in the sand, or pain threshold.
|FinaMetrica Risk Score||HiddenLevers Loss Tolerance|
|FinaMetrica Risk Score <30||Loss Tolerance of 5%|
|FinaMetrica Score between 75-30||Subtract 25 from FinaMetrica Score*|
|FinaMetrica Score >75||Loss Tolerance of 50%|
*Example: A FinaMetrica score of 45 would translate to a HiddenLevers loss tolerance of 20% (45-25).
FinaMetrica reports only 1/1000th of their surveys have scored below 20 or above 80. 2/3 of their survey scores fall between 40 and 60. Through these numbers we are able to calculate a distribution of FinaMetrica’s Risk Tolerance scores. The standard deviation of the distribution is approximately 10 with a mean score of 50.
This implies that a score of 30 is 2.0 standard deviations from the mean (50).
Our minimum risk score is 5% so any FinaMetrica Risk Tolerance score below 30 will fall within this threshold. Conversely at the higher end of the scoring range the same thing occurs, we assign any FinaMetrica Score above 75 a loss tolerance of 50%.
After accounting for the extreme outcomes within the distribution, we can translate FinaMetrica’s mean score (50) to our mean score (25%) by subtracting 25. This technique works for any FinaMetrica score outside of the extremes bands discussed above.