Question

What are some statistical measures of risk?

Answer 1

A third common measure of risk used in risk management is the value at risk. The VaR is a statistical measure used to assess the level of risk associatedwith a portfolio or company. The VaRmeasures the maximum potential loss with a degree of confidence for aspecified period.

Answer 2

Risk management is a crucial process used to make investment decisions. The process involves identifying the amount of risk involved and either accepting or mitigating the risk associated with an investment. Some common measures of risk are standard deviation, beta, value at risk (VaR) and conditional value at risk.

Standard deviation measures the dispersion of data from its expected value. The standard deviation is used in making an investment decision to measure the amount of historical volatility, or risk, associated with an investment relative to its annual rate of return. It indicates how much the current return is deviating from its expected historical normal returns. For example, a stock that has a high standard deviation experiences higher volatility, and therefore, a higher level of risk is associated with the stock...

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