Risk Measures

AAA

DEFINITION of 'Risk Measures'

Statistical measures that are historical predictors of investment risk and volatility and major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund compared to its benchmark index.

INVESTOPEDIA EXPLAINS 'Risk Measures'

There are five principal risk measures:

Alpha: Measures risk relative to the market or benchmark index
Beta: Measures volatility or systemic risk compared to the market or the benchmark index
R-Squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index
Standard Deviation: Measures how much return on an investment is deviating from the expected normal or average returns
Sharpe Ratio: An indicator of whether an investment's return is due to smart investing decisions or a result of excess risk.

Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different potential investment to get a relative performance.

RELATED TERMS
  1. Time Charter Equivalent - TCE

    A shipping industry standard used to calculate the average daily ...
  2. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  3. Risk Of Ruin

    The probability of an individual losing sufficient trading or ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  5. Alpha

    1. A measure of performance on a risk-adjusted basis. Alpha takes ...
  6. Beta

    A measure of the volatility, or systematic risk, of a security ...
Related Articles
  1. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

  2. Investing Basics

    Beta: Know The Risk

  3. Options & Futures

    Adding Alpha Without Adding Risk

  4. Mutual Funds & ETFs

    Understanding Volatility Measurements ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center