UK Accounting Glossary
The potential negative result of an event, activity, or action.
A situation involving exposure to danger.
Risk is usually measured by calculating the standard deviation of the historical or average returns of a specific investment.
Many companies now allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A key component of the risk management process is risk assessment, which involves the determination of the risks surrounding a business or investment.
Market risk is the variability or standard deviation of the sum of the securities in any market. Market risk comes from forces (dangers) that affect all businesses – not just one company or one industry.
Market risk is also known as undiversifiable risk or systematic risk.
Unique risk is the risk that can be eliminated by diversification. Unique risk is attributable to the fact that many of the risks a company can face are specific to that company and possibly its competitors. These risks are therefore minimized through diversification, which is essentially diluting the effect these risky securities may have.
Unique risk can also be called diversifiable risk, residual risk, specific risk, or unsystematic risk.
Investors know there is a risk of losing money in any new venture, so they do quite a bit of research before committing funds to a company.
There is a risk of theft from warehouses that are left unguarded, though that is somewhat covered by property insurance.
Why risk your life?
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This glossary post was last updated: 15th February 2020.