It stands for capital at risk; a measure of risk that reflects the probability that the return of initial capital (principal) invested would be doubtful up to a certain degree. If the performance of an investment lies within specified limits, repayment of initial capital invested can be made as per contractual terms. Otherwise, the provider of the capital (invested amount) could lose some or all of the initial capital invested.

Generally speaking, capital at risk is defined as the amount of capital that is set aside by an individual or entity as a means by which certain types of risk can be covered.

In the specific context of credit risk, capital at risk (CaR) is measured as a function of the probability distribution of economic loss. The probability distribution of economic loss is, in turn, a function of the distributions and correlations of certain factors: potential replacement cost, default and recovery.

Capital at risk should not be confused with capital risk or risk capital. Capital risk represents the risk arising from the partial or total investment amount that is invested and is exposed to risk of loss. For example, if an individual has initially invested $5,000 in stocks. This initial investment is the capital invested or paid in. Therefore, the capital risk here is $5,000, irrespective of the current market value of these stocks at a certain point in time (that might be greater or smaller than the original capital invested.

Risk capital, on the other hand, refers to amounts of money allocated to high-risk venues (e.g., speculative activity, high-risk, high-reward investments). However, and in general contexts, all types of monetary and non-monetary assets that are exposed to potential losses in value are classified as risk capital.

Capital at risk (CaR) and is a replacement for value at risk (VaR) which saves the need to consider fat tails or outliers (known as Black Swans) as it virtually eliminates downside unexpected outcomes. In this sense, capital at risk represents a conservative measure of risk which mainly focuses on determining the maximum downside (downside risk) to the investment.