Modules for Traders
Introducing the statistics of risk
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How to account for risk when building a portfolio?
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Can you modify your portfolio to manage risk better? Check out the answer to this question in this video.
Before you build an investment portfolio, you need to pick the stocks or assets to invest in. You also need to decide how to distribute the capital among the assets. And above all, it is important to account for the portfolio risk. One way to reduce the overall portfolio risk is including low-risk assets. Another way to account for risk and reduce it is portfolio diversification. You can also modify the risk of your portfolio by changing the weights assigned to each asset in the portfolio. This is essentially changing the amount invested in each asset. Asset allocation is an important concept at play here. It can help balance risk and reward in an optimal manner. To help account for risk even more accurately, you can make use of statistical tools. Now, it's time to learn about another important concept called 'Value at Risk' in the next chapter.