Risk There Are Many Sources Essay

Open, View, and/or
Download this Document

Total Length: 628 words ( 2 double-spaced pages)

Total Sources: 2

Page 1 of 2

The major difference between standard deviation and the beta is that the former measures the volatility against the asset's own mean, whereas beta measures the asset's volatility against the market. Standard deviation, therefore, allows the user to understand the asset's specific risk on its own, and can use this information to compare returns against historical average returns. This is valuable because the risk profile of an investment can be significantly different than that of the market, so the returns will be expected to be significantly different as well.

Standard deviation can also be used to measure against other means, for example against historic market returns. However, the beta coefficient is more effective as a measure against the market. Standard deviation and beta are both often used as measures on their own, without any model, because they communication the information clearly.

Stuck Writing Your "Risk There Are Many Sources" Essay?

View All Our Example Risk There Are Many Sources Essay

Have A Custom Example Essay Written

In the capital asset pricing model, for example, the systematic factors are going to be equal among all stocks anyway, so differences in the expected returns of securities will reflect differences in the betas of those securities. The standard deviation, which is often used for mutual funds but can be used for any asset, is also used as a standalone risk measure. Many firms incorporate standard deviation into proprietary risk modeling software that evaluates portfolios.

The elements that contribute to price movements and returns -- and thus to beta and standard deviation -- are those that reflect firm-specific risk factors. Standard deviation will also include systematic risk, so all risk factors. Each unique individual factor can be analyzed independently, but often in financial management these aggregates are used to understand the firm's or portfolio's risk profile.

Works.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Risk There Are Many Sources" (2013, April 09) Retrieved May 20, 2025, from
https://www.aceyourpaper.com/essays/risk-sources-89252

Latest MLA Format (8th edition)

Copy Reference
"Risk There Are Many Sources" 09 April 2013. Web.20 May. 2025. <
https://www.aceyourpaper.com/essays/risk-sources-89252>

Latest Chicago Format (16th edition)

Copy Reference
"Risk There Are Many Sources", 09 April 2013, Accessed.20 May. 2025,
https://www.aceyourpaper.com/essays/risk-sources-89252
   

Open, View, and/or
Download this Document
order custom essay example