How to Measure Market Risks?

1 min read | September 02, 2020 04:59 PM AEST | By Team Kalkine Media

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Market Risk is generally measured using two methods which include Beta Value for the portfolio and value-at-risk (VaR) method.?

Beta Measures Market Risks can be evaluated using Beta, which indicates the volatility of a particular asset/stock/portfolio viz-a-viz the overall market volatility. Beta, also referred to as financial elasticity, is used as a measure of systematic risk of an asset considering the market as a whole. Investors calculate the Beta Measure in stocks for the portfolio to gauge the systematic risk of the portfolio in comparison to the overall market risk.?
Value-at-Risk Measure Value at Risk (VaR) is often used as a simplified technique of calculating the market risk. The measure encapsulates the entire market risk faced by a company. VaR is a statistical method, which answers three significant questions surrounding an investment decision, which are: What is the maximum potential loss that the investment can suffer? What is the likelihood of the loss to occur? What would be the time horizon for the loss?

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