In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given the fund’s investment objectives and risk tolerance.
- Risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions.
- Risk is inseparable from return in the investment world.
- A variety of tactics exist to ascertain risk; one of the most common is standard deviation, a statistical measure of dispersion around a central tendency.
- Beta, also known as market risk, is a measure of the volatility, or systematic risk, of an individual stock in comparison to the entire market.
- Alpha is a measure of excess return; money managers who employ active strategies to beat the market are subject to alpha risk.
