measuring risk and beta from an Investor's perspective the most basic form of risk is driven by how variable are the values from period to period the risk associated with the security is directly proportional to this variability. Let's take a look at some basic example, if the risk from the asset is certain there will be no variability and therefore no risk.

This is generally the case with an interest paying bank deposit as there is a contractual right to interest corporate bonds also have a contractual obligation. However, they are a very credit quality. So the risk increases equities have no guarantees of payment or value and therefore have high variability and Emerging Markets or startups have the highest variability.

Here are some real-world examples of two Securities this chartplots 10 period values of two Investments A and B, even though both Investments start with the same value and have similar final values with a total return of 80% in this scenario investment. B has values that vary more widely from period to period the values of investment. Be are more volatile and therefore hold more risk than those of investment a this can be seen in that while investment B has higher Peaks. It also has lower troughs.

Small stock large stocks government bonds and treasuries with their respective returns going back all the way to 1926 standard deviation shown in the middle is used to measure the variability of the Investments returns. It shows the fluctuation of returns around the arithmetic annualized Return of the investment the higher the standard deviation the greater the variability of the investment Returns, the return distribution for each asset class graphically shows the return data in a histogram riskier assets such as stocks have spread out or more variable Sky lines reflecting the broad distribution of returns less risky assets such as bonds have narrow skylines indicating less variable returns government bonds and treasury bills are guaranteed by the full faith in credit of the US government as to the timely payment of principal and interest while stocks are not guaranteed and have been more volatile than the other asset classes furthermore small stocks or more. volatile than large stocks are subject to significant price fluctuations and business risks and are thinly traded total risk is usually measured by the statistical calculation of standard deviation, which measures how dispersed values are from the average. It is comprised of systematic risk and unsystematic risk.

Thematic risk is risk that cannot be avoided at the firm level and is inherent in the overall Market. It is non-diversifiable because it includes risk factors that are innate within the market and affect the market as a whole systematic risk is also caused by factors that are external to the organization while it is not diversifiable because in theory all firms or entities are exposed to it and a broader sense one can control how much they are exposed to it by using methods like hedging and asset allocation systematic risk is present in all Investments, but to different degrees for example, high end fashion retail obviously carries different risks than lower end retail such as grocery stores.

There are many examples of factors that constitute systematic risk including interest rates economic Cycles political uncertainty widespread natural disasters and others these events affect the entire market and there is no way to avoid their effect while systematic risk can't be eliminated. It can be magnified through selection or by using leverage macro factors which influence the direction and volatility of the entire Market would be systematic risk an individual company cannot control systematic risk one obvious example is interest rate risk interest rates are widely followed for a reason if a government is increasing or decreasing rates, the value of Securities would be affected and in turn the value of the assets, this is something that cannot be controlled or influenced by an organization.

Unsystematic risk is the risk that is inherent in a specific company or industry. We can't avoid non-systematic Risk by combining an asset with other assets. This is diversification where you form a portfolio of assets that tend not to move together or have less of a correlation to each other.

Non-systematic risk is risk that is local or limited to a particular asset or industry. It also needs not affect assets outside of that asset class all events will directly affect their respective companies or Industries and sometimes sectors but have no effect on the assets that are far removed from these industries and lastly unsystematic risk is not related to Broad economic factors.

Unsystematic risks such as labor strikes and Regulatory actions are related to those specific firms diversification is used to eliminate these kinds of risks. This is unlike systematic risks such as War political problems or inflation, which are factors affecting all firms.