Question

various measures of quantifiable risk including Standard Deviation, Beta and VAR. How can an investor use each of these measures when managing their own investment portfolio?

Answer 1

Standard Deviation

1. Used most for gauging risk of a fund by investors.

2. It quantifies how much the return would vary from its average mean which helps investors to detemine the upside and lowside of the return.

3. It gives you a probable range of returns to be earned.

Beta

1. Beta is a measure of volitality otherwise known as systematic risk of a stock, portfolio as compared to the whole market.

2. Low Beta means a low risk fund and higher beta means high risk fund

VaR (Value At Risk)

1. Measure of Risk based on probability of loss and a specific time range in which the loss might occur.

2. VAR calculates the worse case scenario or the maximum loss an investor may face on an investment given a specific time period and given a specific confidence level.