Risk
There are two kinds of risk that a company faces. Systematic risk is risk that is inherent in the economy. This risk is generated largely by external factors to the company, such that the company has little control over these factors. This type of risk is faced by all companies (or most of them) within the economy and as a result it is very difficult to diversify systematic risk away. Hence, it is undiversifiable risk. The other type of risk is diversifiable risk. This risk type is generally internal to the company, so it is generated by company-specific factors that are not shared by other companies.
In modern portfolio theory, firm-specific risk factors can be diversified away, if a portfolio has enough other securities and securities from different risk categories. A fully-diversified portfolio should have risk equivalent to the broad market (undiversifiable risk) because the risk associated with any one individual firm would be balanced by opposite risk factors associated with other firms.
If there is a substantial increase in inflation, this would be undiversifiable risk. Inflation is an external macroeconomic factor that affects all firms within the economy. Thus, as long as one is limited to building a portfolio within a single country, inflation represents an undiversifiable risk. When modern portfolio theory was originally developed, it was difficult to invest in foreign companies, whereas today many investors can diversify the risk of single-country inflation away simply by investing in other parts of the world. That said, if inflation in one country affects the price of a global commodity (as U.S. inflation would), then the inflation risk would remain undiversifiable.
A major lawsuit filed against a publicly traded corporation is a firm-specific event. This is a clear-cut case of diversifiable risk, because the downside of losing such a lawsuit mainly affects the one firm in question. Owning a diversified portfolio would all but eliminate the risk associated with this event.
2. The capital asset pricing model is a method of determining the cost of equity for a company. This is based on the historic performance of its stock vs. The broad market, which is reflected in the beta. The formula for CAPM is:
Ra = Rf + ?(Rm-Rf)
a.…
Risk Management in Hedge Funds A research of how dissimilar hedge fund managers identify and achieve risk The most vital lesson in expressions of Hedge Fund Management comes from the inadequate name of this kind of alternative investment that is an alternative: The notion that all methodical risks are differentiated away is not really applicable here, with the Hedge Fund returns, in realism, representing a mixture of superior administration of market
Risk of Drones encounters with manned aircraft in the National Airspace System Abstract The research problem identified is analyzing the risk factors of incorporating unmanned piloted aircraft into the National Airspace to the United States and the manned aircraft, which operates in the National Airspace. The methodology employed was quantitative statistical analysis using hypothesis testing for concluding whether there is a risk factor associated with unmanned aircraft or not. The sample is
Risk Assessment Program Over the last several years, many small and medium sized businesses have been turning to cloud computing as a way of storing, retrieving and accessing vital information. This is when a third party provider will offer firms with these services at a fraction of the cost of traditional IT departments. Moreover, there is unlimited storage capacity and firms can readily protect themselves against vulnerabilities at a particular site.
Risk Assessment for GFI Group, Inc. (GFI) RISK ASSESSMENT Company Network, Interconnection, and Communication Environment When it comes to the company network, GFI Group, Inc. (GFI) operates as a dealer brokerage company, which was discovered in the U.S. It is in network with over the counter (OTC) related securities and derivative products. The company mostly offers market data brokerage services, and analytics software merchandises to commercial and investment banks, insurance corporations, large businesses
Risk Factors to the Onset of Drug Addiction Drug addiction is one of the subjects whose importance can never be underestimated. Even though this issue is discussed at every forum, the problem persists in the society and needs to be sorted out. It should be noted here that there are always some factors that are common among the people who resort to drug addiction. Some of these factors will be sought
Risks to the Global Capital Market "Beware the next financial blind spot." Summary Gillian Tett's article exemplifies various issues and risks involving financing in and out of the bank. The world marketing systems and non-bank entities are taking shape because it happened during the managerial times of Mr. Paul Tucker. Tucker expresses the point of need for many financiers to understand and consider the effects brought by shadowy banks, most of which
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