How to Measure Portfolio Risk


Investing in stocks, mutual funds and various other funding sources for the business market can be both a financially rewarding and risky monetary venture. For some businessmen, working with and understanding the value of their portfolio comes almost like second nature; for others, it is a completely unknown world of mysterious market figures. However, basic calculations for determining the risk factor of your own portfolio are actually fairly simple to perform, requiring only elementary knowledge of mathematical functions.

Research the beta value for whatever item/company in your portfolio for which you are determining the risk factor. Beta values can be found listed on most major news source’s business sections. Additionally, like all stock-related investment factors, beta values will constantly vary from day to day.

Determine what weight that stock investment makes up of your entire portfolio. Do this by calculating the total percentage of your stock that the company makes up; for example, if your total portfolio’s value is $25,000, then a company that makes up $2,500 of your portfolio would hold a weight of 10 percent.

Multiply the listed beta value times the value of the weight of the stock in your portfolio. This should result in a new value, which represents the beta value of that company in your investment portfolio.

Perform these calculations for every one of the companies that make up your portfolio; remember to always use beta values that are listed on the same day as all other beta values used in the calculations.

Add all of the beta values together. The risk factor for beta values of a portfolio is taken by finding the difference between this sum and the number one. For example, if the beta of your portfolio is 1.34, then the risk factor would be 0.34; the greater the beta value is from 1.0, then the greater this difference will be, and subsequently, the greater the risk factor will be as well.

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