Risk
The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. Investopedia Says:
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 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 Terms:
Beta
Country Risk
Eat Well, Sleep Well
Event Risk
Liquidity Risk
Market Exposure
Political Risk
Preservation of Capital
Price Risk
Reinvestment Risk
Return
Risk Averse
Risk Capital
Risk/Return Tradeoff
Systematic Risk
Unsystematic Risk |