About This Chapter
Risk Measurement & Metrics - Chapter Summary
Work through this helpful chapter at your own pace as you study risk measurement and metrics. Just a few of the subjects that you'll find here include five principal risk measures in risk management and using and understanding cost-benefit analysis. All of our resources are written by professional instructors so that you can understand these topics easily. The lesson quizzes and chapter test offer assistance helping you discover any areas that need more work. Feel free to reach out to an expert through the Dashboard if you need it. After you complete this chapter, you should be ready to:
- Define risk-return analysis and its methods
- Provide an overview of RiskMetrics methodology
- Discuss the approaches in risk-adjusted return on capital
- Outline scenario analysis and stress testing in risk management
- Define predictive analysis and provide examples
- Detail common measures of risk in risk management
- Identify the applications for capital adequacy ratio (CAR)
1. Five Principal Risk Measures in Risk Management
How can investors manage risk? In this lesson, we'll take a look at the five major risk measures in risk management: alpha, beta, r-squared, standard deviation, and the Sharpe ratio. We'll also examine how they are used.
2. Risk-Return Analysis: Definition & Methods
To get a higher return in the investment world you have to take more risk. Two tools that help the investor balance the two are the capital allocation line and the efficient frontier. Let's see how these tools work with examples and illustrations.
3. Understanding & Using Cost-Benefit Analysis
This lesson will introduce the concepts, advantages, and disadvantages of cost-benefit analysis. Although the cost-benefit analysis is an excellent tool, we shall see that not all costs and benefits can easily be assigned monetary values.
4. RiskMetrics Methodology: Overview & Analysis
Measuring the risks of investments and portfolios of investments has long been an area of interest for investors. Risk metrics came along in 1994 and standardized the process for quantifying risk. A few examples of how will follow.
5. Capital Asset Pricing Model (CAPM): Definition, Formula, Advantages & Example
Learn about the Capital Asset Pricing Model (CAPM), one of the foundational models in finance. We'll look at the underlying assumptions, how the model is calculated, and what it can do for you.
6. Overview of Scenario Analysis & Stress Testing in Risk Management
Scenario analysis can tell us what a particular set of circumstances will do to our finances. It helps individuals make decisions and is common in business. We will construct some scenarios and also look at extreme scenarios called stress tests.
7. Predictive Analysis: Definition & Examples
If you've had a Google search finish your thoughts, you've seen predictive analysis in action. The crux of predictive analysis is the question: What might happen? We'll provide some more detail and examples.
8. Capital Adequacy Ratio (CAR): Definition & Applications
In this lesson, we'll define bank reserves and capital adequacy ratio. You'll learn the importance of CAR and its formula. We'll also discuss which entities established and evaluate CAR.
9. Required Assignments Reminder
Sorry for the interruption to your course progress! We wanted to make sure you knew this course has a written assignment requirement in order to be completed. Read on to learn where to find these assignments and how to submit them.
Earning College Credit
Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.
To learn more, visit our Earning Credit Page
Transferring credit to the school of your choice
Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.
Other chapters within the Finance 305: Risk Management course