Systematic Risk Essay

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

Diversification is a basic principle in investing the idea being that since you cannot possibly know beforehand which stocks will perform better or worse than the average, you cannot afford to put all of your money into one company, or even in companies within a single industry. One resorts to diversification to spread the risk -- and opportunity. The average returns are obtained by diversifying.

Harry Markowitz 1991, developed a theory of “Portfolio choice”, that allows the investors to examine the risk as per the expected returns. In modern World, this theory is known as Modern portfolio theory (MPT). It attempts to attain the best portfolio expected return for a predefined portfolio risk, or to minimise the risk for the predefined expected returns, by a careful choice of assets. Though it’s a widely used theory, still has been challenged widely. The critics question the feasibility of theory as a strategy for

Safety checks should be carried out to eliminate the risk of putting the safety of people attending a sporting event at risk.

The use of pesticides is an important decision that thousands of communities face each year. Nobody likes dealing with mosquitos and the diseases they bring so using chemicals and pesticides is an option but with other consequences. Mosquitos carry West Nile Virus that affects the city of Genericville every year with 50 cases projected this year in the city and two fatalities as well. On the other hand, the chemicals proposed for controlling the mosquito population has its own risks. The pesticide Malathion is also dangerous to people if they come in contact with it before it degrades. The potential for citizens of the city being exposed is almost a certainty

Systematic risk or market risk is the risk that affects a large number of assets. Examples of systematic risk are inflation or increasing the interest rate, or any uncertainties in the economy but not the company 's performance. Unsystematic risk is the risk that mainly associated with specific companies or may be some competitors and suppliers. The systematic risk affects the whole market and cannot be controlled by investors. Unsystematic risk however affects the company and is controlled by the company 's performance. When investors invest money into a company they must research all aspects of that company so they are aware of the unsystematic risks they may encounter.

Systematic risk results from factors that affect all stocks. The risk of a project from the viewpoint of a well-diversified shareholder. This measure takes into account that some of the project’s risk will be diversified away as the project is combined with the firm’s other projects, and, in addition, some of the remaining risk will be diversified away by shareholders as they combine this stock with other stocks in their portfolios.” (Keown PG, 510)

Risk refers to a likelihood, probability, a chance that a loss may occur in a given organization. Most of the times, there is a high risk when there is vulnerability. In this case, vulnerability refers to a weakness that the organization has. Risk assessment refers to the process of identification of potential hazards and proper analysis of the expected losses if those hazards occur (Homeland Security, n.d.). Risk assessment as a way of profiling risk according to impact to the organization. Some organizations have business impact analysis exercises geared towards determination of potential hazards based risk assessment approaches. Organizations’ risk differ depending on the size and the type of business they are doing. The disparity in organizations’ risk call for different adaptation of risk assessment approaches. Even with the disparities of the businesses, proper risk management not only ranks the risks according to the seriousness but also identifies the best methods to control risks in an organization.

The risk assessment tradition according to Walker is what is relied upon to make any predictions on future criminal behavior for an offender. He mentions the importance of what factors a risk assessment should include such as personality, substance abuse, and relationship with others (2015, p. 82-84). All of these factors in the risk assessment test can help make a prediction and allows decisions made by judges or the courtroom workgroup to be a bit more accurate according to what offenders score on assesssments. The individual’s criminal history alone should not be the only think a judge should look at when making a decision. The risk assessment is often used to determine things such as the sentencing, if they should be on probation or not

________ risk involves variation in returns due to the ups and downs of the economy, the industry and the firm.

Diversification is a method of investing that been shown to increase portfolio return while reducing portfolio risk as measured by standard deviation. This method specifically increases the efficient frontier for investors. The challenge to an investing firm is an appetite by its customers for an ever increasing efficient frontier. One area to explore to obtain this increase is through further diversifying through international diversification.

Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Objective of risk management is

Concept of risk, risk assessment, risk management and how uncertainty affects the process will be discussed.

In their research study, Souder & Myles (2010) identify that risk is chiefly fundamental to investing. Böhringer & Löschel (2008) further add that there is no discussion of returns or performance that is deemed meaningful in the absence of at least some mention of the involved risk. However, the trouble for investors, who have just entered into the marketplace, involves the process of figuring where risk really lies, as well as what the difference between the various levels of risks. Relating to the manner, in which risk is fundamental to investments, a significant number of new