What is 'Risk'
The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk.
Many companies now allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A key component of the risk mangement process is risk assessment, which involves the determination of the risks surrounding a business or investment.
BREAKING DOWN 'Risk'
A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on additional risk.
For example, a U.S. Treasury bond is considered to be one of the safest (riskfree) investments and, when compared to a corporate bond, provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.

Risk Lover
An investor who is willing to take on additional risk for an ... 
Return
The gain or loss of a security in a particular period. The return ... 
Downside Deviation
A measure of downside risk that focuses on returns that fall ... 
RiskAdjusted Return
A concept that refines an investment's return by measuring how ... 
Country Risk
A collection of risks associated with investing in a foreign ... 
Mean Return
1. In securities analysis, it is the expected value, or mean, ...

Investing
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Managing Wealth
Understanding The Sharpe Ratio
This simple ratio will tell you how much that extra return is really worth. 
Managing Wealth
Risk and Diversification: Different Types of Risk
Let's take a look at the two basic types of risk: Systematic Risk  Systematic risk influences a large number of assets. A significant political event, for example, could affect several of the ... 
Managing Wealth
How to Calculate Risk Premium
Think of a risk premium as a form of hazard pay for risky investments. 
Managing Wealth
How to Use a Benchmark to Evaluate a Portfolio
What is an investment benchmark and how is it used to evaluate the risk and return in a portfolio. 
Managing Wealth
Mitigating Downside With The Sortino Ratio
Differentiate between good and bad volatility with the Sortino Ratio. 
Managing Wealth
The Uses And Limits Of Volatility
Check out how the assumptions of theoretical risk models compare to actual market performance. 
Managing Wealth
Redefining Investor Risk
Changing the way you think about time and risk can change the way you invest. 
Managing Wealth
Understanding RiskReturn Tradeoff
The essence of riskreturn tradeoff is embodied in the common phrase “no risk, no reward.” 
Investing
Find The Highest Returns With The Sharpe Ratio
Learn how to follow the efficient frontier to increase your chances of successful investing.

How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
How is risk aversion measured in Modern Portfolio Theory (MPT)?
Find out how risk aversion is measured in modern portfolio theory (MPT), how it is reflected in the market and how MPT treats ... Read Answer >> 
Is there a positive correlation between risk and return?
Learn about the positive correlation between risk and the potential for return, and understand how risk is used to construct ... Read Answer >> 
What does standard deviation measure in a portfolio?
Dig deeper into the investment uses of, and mathematical principles behind, standard deviation as a measurement of portfolio ... Read Answer >> 
What is the difference between risk and opportunity cost?
Learn the subtle differences between the concepts of risk and opportunity cost as well as how they impact your investment ... Read Answer >> 
What are some classes I can take to prepare for the Series 6 exam?
Learn about how the riskreturn tradeoff applies to bond yields, and the different types of risks associated with investing ... Read Answer >>