Risk

You have some spare money and are excited! You want to make this money work for you but you hear all the talk of a bubble coming soon you are worried. What will happen if you invest the spare cash? Will you make some money or will you lose it! This is uncertainty, this is a risk.

Risk is uncertainty. Uncertain your portfolio will return a profit. Risk is a very important topic in the financial markets and in the business world at large. Some risks are listed here.

  • Country risk
  • Systemic risk
  • Foreign exchange risk
  • Sector risk
  • Idiosyncratic risk
  • Political risk
  • Market risk
  • Credit risk
  • Liquidity risk
  • Company risk
  • Contagion
  • and many more…

When building your portfolio you need to be aware of the risks that affect the assets in your portfolio.

When managing a portfolio the quantifiable risk, volatility is the standard deviation of the portfolio return.

When analysing stock you have to remember that this is a time series. What this means is that you can carry out analysis on different time windows.

For example, Analysis of the daily return for one year, analysis of monthly return of one year or yearly return over 5 years.

How do we measure risk one way to measure risk is by using volatility.

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