Monday, January 3, 2011

Market Risk

Market Risk refers to the chance that an entire group of assets will fall in value. Another variation of market risk include correlation risk (i.e. the risk that correlations converge, such that all assets move in the same direction e.g. down). Market risk is generally measured using the Beta metric, which is a measure of how closely an asset or portfolio of securities move in relation to an index e.g. a beta of 1 means the same movements as the index, while a beta of 2 means twice the movement of the index - a portfolio with a beta of 2 has a relatively high level of market risk. The main relevance or consequence of market risk to investors is the possibility that they may have to sell their shares or redeem their investment at an unfavourable price.

Synonyms: Beta, Systematic risk, Aggregate risk

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