Risk Metric
A risk metric is a specific calculation or indicator used to quantify and analyze the risk associated with an investment or financial decision. Risk metrics provide insight into the probability of negative outcomes, the volatility of returns, and the potential impact of adverse events on a portfolio. Common risk metrics include beta, alpha, volatility, and maximum drawdown. Investors use these metrics to assess the risk-adjusted performance of assets and make informed decisions about portfolio allocation.
Example
An investor uses beta as a risk metric to measure how sensitive a stock's returns are to movements in the overall market, helping to assess the stock’s volatility.
Key points
• Specific calculations used to quantify the risk of an investment or decision.
• Common risk metrics include beta, volatility, and maximum drawdown.
• Provides insight into the probability of negative outcomes and portfolio volatility.
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