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Portfolio risk definition

Few people truly understand the complexities of portfolio risk.

Beginner

Portfolio risk is the general term for riskiness or dispersion of returns on a portfolio of assets. There are several different ways risk can be measured and interpreted. It can be measured using the stream of values of a portfolio, like the NAV on a mutual fund, or from a bottom-up calculation using individual positions and weights. The latter requires covariance calculations between all combinations of stocks. Portfolio risk can also be compared to other portfolios, or benchmarks, on a relative basis.

Synonym: portfolio variability


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Quiz

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Portfolio risk is normally depicted on the x-axis in a risk-return scatterplot. | True or False?

True

In a Sentence

Pat:  As your CEO, I encourage every employee to learn the calculations of portfolio risk .
Eve:  Yes, I concur. It's the best way to reduce career risk.

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Keywords:
portfolio risk
portfolio variance
portfolio standard deviation
dispersion
variability
returns-based
holdings-based
investment
Modern Portfolio Theory
MPT
covariance matrix
relative risk
absolute risk