How to determine portfolio risk

1. How to determine portfolio risk? How to determine portfolio risk? Every financial investor will encounter a trade-off between returns and risks. The reward for the greater risk is greater returns. However, it would be best to consider your risk appetite before making any investment. Each investment has a different level of risk. The more you diversify your investments in your portfolio, the lower your overall risk will be. Let us understand what affects the performance of assets and how you can quantify the amount of risk you may face. What is portfolio risk? What is portfolio risk? Portfolio Risk Portfolio Risk is the total risk determined by the individual risk associated with each asset you hold in your portfolio. The assets you own may fail to perform financially as expected. As a result, it leads to a substantial amount of loss. There are multiple causes for it and different ways to mitigate each category of risk. Let us see what the various types of risks are. Types of portfolio risks Types of portfolio risks Risks involved with individual securities Risks involved with individual securities To understand the overall risks involved in portfolios, let us first see the risks involved with individual securities. Liquidity risk Liquidity risk It is the risk of not fulfilling short-term obligations on time. Short-term obligations are those that are due within a year.

2. Political and regulatory risk Political and regulatory risk It is when an investor suffers financially due to any sort of political flux in the country. Default risk Default risk It is a type of risk where a borrower cannot pay off his debts to the lender on time. Once a specific time has passed without any repayment, the loan converts to bad debt. Style r Style risk isk It is a type of risk that is associated with your style of investing. Duration risk Duration risk It is the risk associated with the time horizon of your investment. Over a period of time, you can find differences in interest rates. Eventually, the market value will either increase or decrease according to these fluctuations. As you know, a portfolio is a combination of individual securities. However, certain kinds of risks are exclusively associated with the overall portfolio. Let us have a look at those. Read more about the portfolio portfolio risk formula risk formula