Investment Risk and Beta Explained Essay

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measure risk?

Risk is a "yin" to the yang of investment, which would be performance. In a nutshell, risk is a deviation from the standard and expected outcome. In other words, let us say there is the expectation that a certain stock will keep soaring. Risk is the perceived or actual probability that this will not happen. The usual tool and metric used to measure risk is standard deviation. Standard deviation is the measure of how far from the norm or average that a stock or other investment performs.

What are the different types of risk affecting the securities and portfolios held by individuals and corporations? Discuss

In general, there are two types of risk, those being active and passive. The common measurement that comes forth when it comes to measuring risk is the "beta," which is basically another way of saying how volatile the security or how likely it is that the security's performance will deviate from the "norm" for the market as a whole. Other names for the beta include market risk, systematic risk or non-diversifiable risk. Risk can also come in the form of completely ad hoc or one-off events such as terrorism or an unexpected political shift (Investopedia, 2016). A recent example of the proverbial apple cart getting upended was the recent decision of the British voters to leave the EU. While the vote was expected to be close, the odds of them choosing to leave was deemed to be very low. However, "leave" was triumphant and the British pound, just to name one thing, has dropped like a rock in terms of value since the vote's results were revealed.

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There may very well be a correction back up coming soon but it has not happened yet (Kantchev, 2016).

3) What are the different types of risk affecting the operations of corporations? Explain.

There are many, but there are some that are more prominent than others. For example, an unexpected shift in interest rates or currency valuation (e.g. the Brexit fervor) can hurt a business that is knee-deep in investments that rely on interest. Indeed, this would be many investments such as bonds, preferred stocks or anything with a fixed rate of return. Beyond that, bonds bought or issued by a company can always go belly up and the risk of those bonds, regardless of who issues them, will have an effect on interest rates. Just as a consumer with shoddy credit will pay a higher interest rate, the same is true of bonds for companies with….....

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