What risk actually is?

What risk actually is?

What is the measure of risk is actually? Risk is at all quantifiable? Or just a “gut feeling”?

As the risk of an event is described, which has a negative impact on something. In our case, the risk would consequently have a negative impact on our investment properties. Risk is thus an external factor of influence on something. We come to the first question, what is the measure for this is actually? In Economics, this is referred to as the volatility. So, the fluctuation width, which is a system object has its average value. This volatility increases the risk, are the risk. However, it should be noted that volatility is not distributed classic normal, but tends to be quite a Surprises. The risk is thus by the factor of the volatility to quantify. For the German stock index, the DAX, the volatility of the index is shown on the VDAXnew®. Deutsche Börse AG calculates contracts as a result of the implied volatilities of the appointment. From this, recommendations for action can be for the total market (Cf. Graph 1, VDAX vs. DAX; source: Thomson Reuters).

Furthermore, the ability to create for different plant groups and types, a categorization of risk and return. As an asset, which leads to a higher risk, should also yield a higher return. Assets considered risk-free, and are therefore profitable only with the risk-free interest rate (see figure 2-risk classification source: Thomson Reuters).


Such a classification of risk and return allows you to select the investor and the adviser, consistent and, above all, coherent investment strategy. Additional factors, such as investment horizon, risk appetite and personal needs insert, of course.



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Article image © Hildegard Armbruster / pixelio.de

Source Of Graphics: Thomson Reuters