Securities & Securities Analysis

Measurement of Risk To measure risk, an investor should first understand the fact that risk cannot be measured accurately because it is surrounded with complex environment factors and social, economic and political forces. The uncertainties make the measurement of risk an approximation or a fairly accurate estimation. The analyst must be very cautious while making predictions because much depends on his accuracy in predicting risks. The quantification of risk ensures comparison as well as uniformity in measurement, analysis and interpretation. To eliminate guesses and haunches in measurement is possible by finding out the difference between actual return and estimated return that is the dispersion around the expected return.Discussion as to how probability distributions are framed was made. These distributions are calculated through ‘standard deviations’ and ‘variances’. They are used for quantifying risk. Fischer and Jordan describe risk in the following manner. “The va...

Types of risk Types mean different classes or various forms / kinds of something or someone. Risk implies the extend to which any chosen action or an inaction that may lead to a loss or some unwanted outcome. The notion implies that a choice may have an influence on the outcome that exists or has existed. However, in financial management, risk relates to any material loss attached to the project that may affect the productivity, tenure, legal issues, etc. of the project. In finance, different types of risk can be classified under two main groups, viz., 1.        Systematic risk. 2.        Unsystematic risk. Systematic risk is uncontrollable by an organization and macro in nature. Unsystematic risk is controllable by an organization and micro in nature. A. Systematic Risk Systematic risk is due to the influence of external factors on an organization. Such factors are normally uncontrollable f...