Every investment has Market Risk (B)
risk. Therefore, you
should understand the What is Company Risk?
different types of
investment risk and how This risk refers to
they affect different factors affecting the
investments and price of a company's
portfolios. securities, such as
management skill, labour
Investment risk is relations, consumer
broken down into two preferences and other
types of risk: unique factors. Company
risk is diversifiable,
A. Company Risk: This since the risk of each
risk can be diversified. security in a portfolio
can be reduced through
increasing the number of
B. Market Risk: This securities. With many
risk cannot be securities in a
diversified. portfolio, a reduced
price in one security
The total investment (due to poor company
risk is equal to the sum performance) may be
of the two risks: offset by an increase
price of another
Total Investment Risk = security in the
Company Risk (A) + portfolio.
Tip: To reduce company particular markets. For
risk: Increase the example, market risk is
number of different present in nearly all
securities in your stocks in the market
portfolio. For example, since stock prices
you can dramatically generally move together
reduce your company risk in the same direction.
by buying an equity
segregated fund or Tip: To reduce market
mutual fund rather than risk: It is difficult to
a single stock. reduce market risk since
increasing the number of
What is Market Risk? different securities
will not decrease market
Market risk refers to risk. The best way to
those factors that reduce your aggregate
affect financial market market risk is by
returns as a whole, such investing in many
as a major increase in different markets such
interest rates, a long as the money market,
war or an outbreak of an bond market and stock
infectious disease. market. The simple and
Market risk is present powerful diversification
in all financial concept is called asset
markets, including the allocation.
money market, bond
market, stock market and To learn more about
currency market. Market investment risk and
risk is common to all other investment topics,
portfolios with visit our website or
securities from these give us a call.
