Market Risk Analysis

Risk can be measured in two ways namely, the market risk and specific risk. The market risk and specific risk are the components that make up the total risk of any investment. Market risk and specific risk are two different forms of risk that affect assets.
Market risk is also referred to as systematic risk and it affects a large number of asset classes (Nickolas, 2015). Market risk is the risk inherent to invest in a specific market. Each of the markets has their own inherent risks and the level of the risk(s) is different in each of the markets. Market risk cannot be mitigated through portfolio diversification. An investor can hedge against systematic risk (market risk). Market risk (systematic risk) is the risk of losing investments due
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Systematic risk which is known as market risk that refers to the variation in the returns on securities, which arises due to macroeconomic factors of business such as social, economic and political factors. Changes to the government policies cause an effect or influences systematic risk. There are different types of systematic risk such as interest risk which refers to a risk that is cause by the fluctuation in the rate or the interest from time to time and affects interest bearing securities like debentures. Another is inflation risk is referred to as purchasing power risk and it affects the purchasing power of an individual. The last is market risk which is a risk that influences the price of a share which refers to the prices that will rise or fall consistently over a period of time along with other shares of the market (S, …show more content…
Specific risk is the risk of losing an investment due to the company or the industry-specific hazard. An investor can only mitigate against unsystematic risk (specific risk) through diversification. An investor uses diversification to manage risk by investing in a variety of assets (Nickolas, 2015). Specific risk is the risk of your specific investment excluding the market risk. Each of the investment in has its own unique set of risks. Specific risk can be reduced by diversifying your investment but not the market risk. Unsystematic risk refers to the risk which emerges out of controlled and known variables that are industry or security specific. Unsystematic risk arises due to the fluctuations in returns of a company’s security due to micro economic factors which is internal factors. The factors that cause unsystematic risk relates to a security of a company or industry that influences the organization and its operations. There are two types of unsystematic risk which include business risk which refers to a risk that inherent to the securities. Business risk refers to the risk when a company performs below average. The second is financial risk which is also referred to as leveraged risk which is cause if or when the capital structure of the company changes (S,

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