Deviating The Risk

Our columnist explains how statistical principles can help reduce risk

Last week, we discussed in detail the various kinds of risks that investors face. However, becoming familiar with the nature of these risks is just one part of the exercise. The next step is to understand how to measure the risk.

Balancing risk and return is not easy since return is objective while risk is subjective. Now, if there was some way of reducing the subjectivity of the risk into a number, the balancing effort would be that much easier. How do we do this?

For starters, we use statistical principles. In fact, the entire concept of