Risk Return Analysis

By Understanding various types of risks in financial markets helps investors make informed decisions and implement strategies to mitigate potential losses.

• Market Risk: The risk of losses due to changes in market prices, affecting investments in stocks, bonds, commodities, etc. It includes:
  • Equity Risk: Risk of loss due to falling stock prices.
  • Interest Rate Risk: Risk associated with fluctuations in interest rates, affecting bond prices.
  • Currency Risk: Risk of losses from changes in exchange rates for international investments.
• Credit Risk: The risk that a borrower will default on their obligations, impacting lenders and investors in bonds or loans.
• Liquidity Risk: The risk that an asset cannot be quickly sold or bought without causing a significant change in its price.
• Operational Risk: The risk of loss resulting from inadequate or failed internal processes, systems, or external events, including fraud or natural disasters.
• Systematic Risk: The risk inherent to the entire market or market segment, which cannot be mitigated through diversification. It includes economic factors that affect all investments.
• Unsystematic Risk: The risk specific to a particular company or industry, which can be reduced through diversification.
• Inflation Risk: The risk that the purchasing power of returns will be eroded by inflation, impacting real returns on investments
• Regulatory Risk: The risk of changes in laws or regulations that could affect the profitability or operations of a business.
• Reinvestment Risk: The risk that an investor will have to reinvest cash flows at lower interest rates than the original investment.