Summary This chapter presents certain techniques for calculating risk. One of the techniques discussed is the use of phi calculations, which is a form of mean variance analysis. However, such calculations can lead to seemingly absurd results. The use of compound returns gives a measurement of ...
Before you can calculate risk exposure, you need a reasonable estimate of the probability a risk event will occur. Suppose you are considering investing in a corporate bond. The first thing you might want to do is conduct some research to find out any business risk areas pertaining to the i...
Named after American economist, William Sharpe, the Sharpe Ratio (or Sharpe Index or Modified Sharpe Ratio) is commonly used to gauge the performance of an investment by adjusting for its risk. The higher the ratio, the greater the investment return relative to the amount of risk ...
There are several common risk adjusted measures used to calculate a risk adjusted return, includingstandard deviation,alpha,betaand theSharpe ratio. When calculating risk adjusted returns for comparison of different investments, it's important to use the same risk measurement and the same period of t...
Return on Investment is an important financial measure that helps businesses in achieving this goal. To provide you with a comprehensive understanding of Return on Investment (ROI), this blog will cover the following topics: What is Return on Investment(ROI)? How to Calculate Return on ...
To calculate business risk, list all potential risks. Evaluate the probability of them happening and how badly they'd hurt. Multiply probability by the level of damage to identify the risks that really pose a serious threat. Internal and External Risk ...
Identify the asset or investment you wish to compare against treasuries. This will determine exactly which duration of treasury to calculate the spread to. For this example, and for the sake of clarity, assume you want to compute the spread for a 10-year corporate bond that pays 10 percent ...
The business could then calculate the ROI when evaluating two different types of computers using anticipated costs and projected gains to determine which ROI is higher. Which computer represents the better investment: Investment A or Investment B?
Value at Risk = vm(vi/ v(i - 1)) M is the number of days from which historical data is taken, and viis the number of variables on day i. The purpose of the formula is to calculate the percent change of each risk factor for the past 252 trading days. ...
Value at Risk (VAR) calculates the maximum loss expected on an investment over a given period and given a specified degree of confidence. We looked at three methods commonly used to calculate VAR. In Part 2 of this series, we show you how to compare different time horizons. Article...