Risk

Filed Under » , , , ,
Dictionary Says

Definition of '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.
Investopedia Says

Investopedia explains '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 (risk-free) 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.

Related Video for 'Risk'

Articles Of Interest

  1.

    Simplify Your Portfolio

    Faced with an overabundance of choices, many investors forget to stick to the basics.

  2. Introduction To Investment Diversification

    Reducing risk and increasing returns in your portfolio is all about finding the right balance.

  3. Make Your Portfolio Safer With Risky Investments

    A high-risk security can reduce risk overall. Find out how it works.

  4. Measuring And Managing Investment Risk

    Risk is inseparable from return. Learn more about these measures and how to balance them.

  5. Using Logic To Examine Risk

    Know your odds before you put your money on the table.

  6. Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.

  7. 5 Investment Risks Created By Global Warming

    Climate-change deniers and believers alike would be wise to prepare for the worst.

  8. Understanding Risk And Time Horizon

    The interaction between your risks and your time horizon influences every investment decision you make, whether you know it or not. Learn the basics here.

  9. What Is Your Risk Tolerance?

    Forget the cliches and uncover how much volatility you can really stand.

  10. Calculating The Equity Risk Premium

    See the model in action with real data and evaluate whether its assumptions are valid.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Xenocurrency

    A currency that trades in markets outside of its domestic borders.

  2. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  3. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  4. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.

  5. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

  6. Chartalism

    A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=9cba4760ac272d981635fafda7009ff1