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Essay / Research Paper Abstract
Investment portfolios will need to match the risk profile of the investor. This 3 page paper considers how the risk of an investment fund or portfolio can be measures. The use of the beta and standard deviation are explained as suitable risk measurement tools. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEriskmea.rtf
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Unformatted sample text from the term paper:
will then be with reference to their risk profile. For this reason the risk if an investment portfolio needs to be measured and understood. To understand risk and how t
can be measured there is also the need to understand the types of risk that exist, as not all can be accounted for in measurements. There are two types
of risk, unsystematic risk, this is the type of risk that a portfolio may minimise through diversification, spreading the risk among a number of investments. This is the type
of risk that is inherent in any business, including aspects such as credit risk and threats to usual operations (Howells and Bain, 1998). There is also systematic risk, this
is a different type of risk that cannot be reduced with diversification at the risk here relates to macro factors, such as interest rate risks, the risk of inflation, the
risk of exchange rate fluctuations and general market risk which include political and economic risks. The development of a portfolio may look to decrease the risk, or increase risk
in line with the risk and reward equations and as such with an understanding of the types of risk that exist measures can be used to assess the risk.
This is only of value if there is the ability to place this in a quantifiable framework. There are two main methods used to qualify risk in a portfolio the
beta and the standard deviation (Howells and Bain, 1998). The beta is a measure of risk, this is calculated by reference to the volatility of an investment, usually
shares. Taking any single share there will be a beta for the share. This places a value in the perceived risk, for example, where a beta is 3 then this
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