A risk is something that can be measured and included in financial analysis. If it can’t be measured, it’s likely just fear.
Counterparty /Partner Risk
The risk that a party in a financial agreement won’t pay as expected or contracted. This risk is present whenever a borrower is expecting to use future cash flows to pay a current debt.
Credit Risk
The risk that a party in a financial agreement won’t pay as expected or contracted. This risk is present whenever a borrower is expecting to use future cash flows to pay a current debt.
Financial Risk
The risk of consequences that may occur due to changes in the financial environment such as interest rate, currency controls, tax laws, liquidity, secondary market, and changes in cash flow.
Market Risk
The possibility for an investor to experience losses due to factors that affect the overall performance of the market the company is operating in. Often shapes the perceived value of an area of economic activity.
Operating Risk
The risk that an organization’s people, process, or system will adversely impact operations or public opinion. This includes the way an organization is structured, its compensations, HR, and IT practices, its reporting and crisis management practices, safety, working conditions, quality controls, and adherence to regulatory laws.
Political Risk
The risk that an investment’s returns could suffer due to political changes or instability in a country or region.
Reputational Risk
The risk that an organization’s decisions or actions will be perceived as negative by the public, stakeholders, or clients, regardless of validity.
Foreign Exchange Risk
The risk of buying an investment in one currency may lose value when it is sold in another currency.
Regulatory Risk
The risk that a change in laws and regulations will materially impact a security, business, sector or market. This can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.
Rule of Law
The risk that the cost and value of investments may become unpredictable in markets where there is dishonest behavior or fraud conducted by those in power.
Expectations for return are calculated by measuring potential risks over time, and then subtracting the cost of the investment.
Betting Against The Benchmark
A standard against which the performance of a security, mutual fund, or investment manager can be measured; betting against it would be high risk expecting high return
Fixed Return
A return in the form of fixed periodic payments and the eventual return of full principal at maturity
Leverage
An investment strategy of using financial instruments (such as options) or borrowed money to generate outsized investment returns
Long And Short
Refers to a policy of only holding “long” positions in assets and securities in order to benefit from an increase in prices; the opposite is to be “short”, which means the holder of the short position gains profits when the prices decrease
Return Net Of Fees
Refers to calculation of return or profit received after fees, taxes, and expenses have been paid
Nominal Rate Of Return
The amount of money generated by an investment before expenses such as taxes, investment fees and inflation are factored in
Return Net Of Inflation
The return on an investment after removing the effects of increased pricing and devalued purchasing power of currency caused by inflation. Also known as a real rate of return
Efficient Frontier
A term that describes portfolios that should capture the highest expected return for a defined level of risk or the lowest risk for a given level of expected return
Variable Return
This type of return changes or fluctuates over time, because it is based on an underlying interest rate or market values that change periodically
Alpha
The expected risk-adjusted return named in the benchmark and seen as a reflection on an asset manager’s success
Beta
The volatility in returns of an asset compared to variability in performance over a previous period of time
How do investors understand the relationship between risk and return in the context of one huge variable: TIME?
Exit Horizon
The time period in which investors can liquidate from an investment without penalty
Liquidity
Term that describes the potential of quickly buying or selling an asset or security
Time Value of Money
Concept that assumes that money in the present is worth more than same amount in the future due to its potential earning capacity
Velocity of Capital
The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time
Current Assets
The items listed on a company’s balance sheet that are expected to be converted into cash within one fiscal year
Noncurrent Assets
Long-term assets that a company expects to hold that cannot readily be converted to cash within a fiscal year
Inflation
A general increase in the price of goods and services over time
Deflation
A general decline in prices, often caused by a reduction in the supply of money or credit over time
Volatility
The degree of variation of a trading price of an asset over time. In general the higher the volatility, the higher the risk