Risk Management: Risk and Uncertainty

What is risk?

"Simply put, risk is uncertainty. The more risk you take, the more you stand to lose or gain. You cannot expect high returns without taking substantial risks."

Tossing a dice, is at basic level a risky endeavor. The outcomes are thrown open to uncertainty. You take risk everytime you act, from crossing the street; to buying a stock. Generally when people talk about risk, they focus on financial risk. In terms of finance, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations.

The concept of risk is not a simple concept in finance. You cannot make wise investments without first considering risk. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio. Measuring risk is just as important as measuring returns.

In the financial world, risk is often expressed as volatility of returns. Volatility measures how variable outcomes are likely to be. Standard deviation is a general statistical measure of volatility. It measures historical variability of returns from their mean. A higher standard deviation implies more variable and uncertain returns. Measuring risk on a portfolio basis shows how well diversified your investments are, where the largest gains and losses are likely to be conc...

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...my is in recession, and on what grounds? What actually constitutes a recession, anyway? When a nation's economy enters a recession, is life guaranteed to get harder for most of its citizens?" (http://www.howstuffworks.com/recession.htm)

How do you know when you're taking too much risk? Or not enough? Risk is a natural part of this world, and indeed, risk can present great opportunities for those who understand and know how to manage it. Advances in risk management theory have had a tremendous impact on global economic development. Now we have powerful ways to analyze risks and make stable decisions about the future. We can identify and measure different types of risk, and decide which ones to take and which ones to avoid.