How can we Include Risk in Investment Evaluation?
Risk is included in the investment evaluation by using the following methods like Beta, Standard Deviation , Value At Risk (VaR)etc. These measure the degree of risk present in any investment.
Beta:
Beta is the amount of Systematic risk that an individual stock has in relation to the entire stock market.Higher the beta, higher the risk.
The Standard Deviation
It includes risk by measuring the historical volatility of any investment in relation to its annual rate of return. For Example: The stoch has higher volatility if the stock exhibits higher standard deviation.
VaR (Value At Risk):
It measures the risk that is associated with a portfolio. It measures the maximum loss for a specific period with a degree of confidence.
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