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Systematic risk
The risk inherent to the entire market or an entire market segment. Systematic risk, also known
as undiversifiable risk, volatility or market risk, affects the overall market, not just a
particular stock or industry. This type of risk is both unpredictable and impossible to completely
avoid. It cannot be mitigated through diversification, only through hedging or by using the
right asset allocation strategy.
For example, putting some assets in bonds and other assets in stocks can mitigate systematic
risk because an interest rate shift that makes bonds less valuable will tend to make stocks more
valuable, and vice versa, thus limiting the overall change in the portfolios value from systematic

Risk that is specific to an asset or a small group of assets. Idiosyncratic risk has little or no
correlation with market risk, and can therefore be substantially mitigated or eliminated from
a portfolio by using adequate diversification. Research suggests that idiosyncratic risk, rather
than market risk, accounts for most of the variation in the risk of an individual stock over time.
Similar to unsystematic risk.
For example, the risk of a pipeline company incurring massive damages because of an oil spill
can be mitigated by investing in a broad cross-section of stocks within the portfolio.

2. Risk Altitude
As we take the example of the education institutional there are two factors which we

Like any organisation, they are must consider a large number of risks. Risks arise from and
exist at different altitudes within the organisation, with each level requiring different
processes and management focus. When considering risk responses, it is important to
recognize which altitude is affected so that appropriate resources and management

3. Financial risk
Size of Leverage
Cost of debt
Structure of debt
Participation loan
(Elaborate the points)

Assess financial risk by lending

The risk of loss of principal or loss of a financial reward stemming from a borrower's failure
to repay a loan or otherwise meet a contractual obligation. Credit risk or lending risk arises
whenever a borrower is expecting to use future cash flows to pay a current debt. Investors
are compensated for assuming credit risk by way of interest payments from the borrower or
issuer of a debt obligation.
Lending risk is closely tied to the potential return of an investment, the most notable being
that the yields on bonds correlate strongly to their perceived lending risk.

4. Interest rate risk effect in real estate

Interest rates, especially the rates on interbank exchanges and Treasury bills, have as
profound an effect on the value of income-producing real estate as on any investment
vehicle. Because the influence of interest rates on an individual's ability to purchase
residential properties (by increasing or decreasing the cost of mortgage capital) is so
profound, many people incorrectly assume that the only deciding factor in real estate
valuation is the mortgage rate. However, mortgage rates are only one interest-related
factor influencing property values. Because interest rates also affect capital flows, the
supply and demand for capital and investors' required rates of return on investment,

When changes in interest rates are viewed as an independent variable (that is, they change
while everything else remains constant), their effect on real estate is simple and clear. At
the end of the day, the value of any investment is the sum of the future cash flows from that
investment, discounted back to present value. As interest rates rise, the value of any future
cash flow decreases, which in turn lowers the value of the asset (real estate property).
Another way to look at this is that higher interest rates cause investors to demand a higher
return, which makes any property less appealing given the return on that specific
investment remains unchanged.
When it comes to real estate, the relationship between inflation and rising interest rates
becomes more complex. Inflation is often the critical driver of interest rates, and as such the
two typically move together. While rising interest rates can reduce the value of future cashflows, inflation can in turn increase the value of physical property due to the fact that real
estate is a hard asset. Ultimately, if the increase in property value from inflation outweighs
the decrease caused by rising rates, the net result can be positive. This fact has made real
estate one of the most sought after investment classes in periods of rising rates because of

Most retail investors, especially homeowners, focus on changing mortgage rates because they
have a direct influence on real estate prices. However, interest rates also affect the availability
of capital and the demand for investment. These capital flows influence the supply and demand
for property and, as a result, they affect property prices. In addition, interest rates also affect
returns on substitute investments, and prices change to stay in line with the inherent risk in real
estate investments. These changes in required rates of return for real estate also vary during
destabilization periods in the credit markets. As investors foresee increased variability in future
rates or increase in risk, risk premiums widen, putting increased downward pressure on
property prices.

5. Exchange rate risk

In the present era of increasing globalization and heightened currency volatility, changes
in exchange rates have a substantial influence on companies operations and
profitability. Exchange rate volatility affects not just multinationals and large corporations,
but small and medium-sized enterprises as well, even those who only operate in their
home country. While understanding and managing exchange rate risk is a subject of
obvious importance to business owners, investors should be familiar with it as well
because of the huge impact it can have on their investments.

Effect foreign own equity investor

The area of concern for retail investors is in the area of currency volatility. When investing
directly in a foreign market (and not through ADRs), you have to exchange your domestic

currency (USD for U.S. investors) into a foreign currency at the current exchange rate in
order to purchase the foreign stock. If you then hold the foreign stock for a year and sell it,
you will have to convert the foreign currency back into USD at the prevailing exchange rate
one year later. It is the uncertainty of what the future exchange rate will be that scares
many investors. Also, since a significant part of your foreign stock return will be affected by
the currency return, investors investing internationally should eliminate this risk.

6. Hedging
A hedge is an investment to reduce the risk of adverse price movements in an asset.
Normally, a hedge consists of taking an offsetting position in a related security, such as
a futures contract.
Hedging is analogous to taking out an insurance policy. If you own a home in a flood-prone
area, you will want to protect that asset from the risk of flooding to hedge it, in other
words by taking out flood insurance. There is a risk-reward trade-off inherent in hedging;
while it reduces potential risk, it also chips away at potential gains. Put simply, hedging isn't
free. In the case of the flood insurance policy, the monthly payments add up, and if the
flood never comes, the policy holder receives no payout. Still, most people would choose to
take that predictable, circumscribed loss rather than suddenly lose the roof over their head.
A perfect hedge is one that eliminates all risk in a position or portfolio. In other words, the
hedge is 100% inversely correlated to the vulnerable asset. This is more an ideal than a
reality on the ground and even the hypothetical perfect hedge is not without cost. Basis
risk refers to the risk that an asset and a hedge will not move in opposite directions as
expected; "basis" refers to the discrepancy.

7. Risk in real estate

Supply shocks
Demand shifts
Design & construction


Interest rate

8. Legislative risk
The risk that legislation by the government could significantly alter the business
prospects of one or more companies, adversely affecting investment holding in that
company. This may occur as a direct result of government action or by altering the
demand patterns of the company's customers.
An example of an industry with high legislative risk is healthcare. Drug manufacturers
and healthcare providers both must contend with many ongoing legislative issues
related to Medicare, insurance coverage and other customer payment issues.

9. Risk mitigation strategy for commercial property

Vacancy risks

Landlords, property holders, investors and developers all face management problems and
increased risk when a commercial property becomes vacant. Failure to manage vacant
property correctly can result in expensive repairs, unnecessary costs, management
problems and potential litigation and costs. The other concern is to keep the property in a
reasonable condition in order to attract new tenants or occupiers.

It can be mitigated by different ways that one can adoptInsurance

Vacant property inspections and security
Key holding
Maintenance and Health & Safety
Empty Property Rates

Cyclical risk

The risk of business cycles or other economic cycles adversely affecting the returns of an
investment, an asset class or an individual company's profits. Cyclical risks exist because the
broad economy has been shown to move in cycles periods of peak performance followed
by a downturn, then a trough of low activity. Between the peak and trough of a business or
other economic cycle, investments may fall in value to reflect the uncertainty surrounding
future returns as compared with the recent past.
Cyclical risk of inflation can be somewhat mitigated by purchasing inflation-protected
securities or through the use of derivatives.
10. Environmental risk

potential threat of adverse
effects on
and environment by effluents, emissions, wastes, resource depletion, etc., arising out of
an organization's activities.
There are significant business costs and liabilities attendant to "recognized environmental
conditions" at a particular property, including:
The cost of compliance with law;
The cost of remediation;
Business interruption costs;
Loss of value of asset as a direct result of environmental condition;
Loss of value of asset resulting from market reaction to publicity about a possible or actual
environmental condition;
Liability to third parties, e.g., toxic tort, adjacent property damage, etc., and
Legal costs of environmental claims or litigation without regard to liability

11. Key risk indicators for a new lifestyle stores in northern India.
Risk Events
Sample KRIs to Monitor Risk Proactively
Economic downturn in Indian markets
Actual and projected retail store
affects retail storefront rental demand and
occupancy rates in northern India.
real estate values.
Commercial real estate rental market
information about leasing prices and
options for similar quality retail
properties in northern India.
Competition increases in the market.
Change in number of new lifestyle
stores in market area.
Announcements of expansions by
big-box retailers and superstores.

Cost of financing too high

Delays in developing property and opening


Long term economic downturn results in

deteriorating customer base

Significant and sustained price

reductions by competitors.
Spreads on debt issuances for
comparably rated companies
Actual and projected interest rates
Company stock performance and
related trends in competitor stock
Compare actual construction and
store opening benchmark dates to
pre-determined target dates
Monitor construction labour union
issues, including competing demands
for construction labour that might
arise due to other major construction
projects in that area.
Employment outlook for government
agencies and government supportive
Forecasts related to unemployment
Consumer spending trends in
northern India.

12. Risk adjusted alpha

Risk Adjusted Alpha (RAA) is an aggressive volatility-adjusted performance measure which
reduces the achieved daily returns of the stock by the returns of the relevant market index,
amplified by the relative volatility of the stock to the market index. If a stock's daily returns
are twice as high as the index and its daily volatility is twice has high as the index, its
volatility-adjusted return is zero. Since RAA is based on relative volatility and is tied to a
market index, high RAA-ranked stocks may be more volatile but achieve higher returns.
If a stock performs equally to the reference index but has higher volatility, its RAA will be
negative. If a stock has twice the volatility of an index and has twice the return, its RAA will
be zero. If a stock has the same returns as the index but does it with less volatility, it will
have a positive RAA.
Selecting stocks by volatility-adjusted performance increases the likelihood that the trader
can maintain a fully invested position start-to-finish through the inevitable short-term
RAA is a variant of the alpha term used in Modern Portfolio Theory to build stock portfolios.
Alpha uses beta in place of the relative standard deviation term in RAA.
Alpha is a measure of performance in percentage above or below what would have been

predicted by risk as suggested by its Beta. Positive alpha means a stock performed greater
than its risk would suggest, while negative Alpha means the stock under performed. An ETF
of Alpha 1.5 outperformed its index by 1.5% as predicted by its Beta.

13. Coefficient of variation vs standard variation

In terms of measuring the variability of spread of data, we've seen that the standard
deviation is
Some additional things to think about the standard deviation:
The standard deviation is the typical or average distance a value is to the mean
If all values are the same, then the standard deviation is 0
The standard deviation is heavily influenced by outliers just like the mean (it uses the mean
in its calculation).
The sample standard deviation is denoted with the letter s and the population standard
deviation is denoted with the lower case Greek letter sigma .
If your data is more spread out (has more variability) then you will have a higher standard
deviation. It's often difficult to interpret a standard deviation since it's based on the sample
of data. Is a standard deviation of 12 high or is a .20 high?

Coefficient of Variation (CV)

If you know nothing about the data other than the mean, one way to interpret the relative
magnitude of the standard deviation is to divide it by the mean. This is called the coefficient
of variation. For example, if the mean is 80 and standard deviation is 12, the cv = 12/80 = .15
If the standard deviation is .20 and the mean is .50, then the cv = .20/.50 = .4 or 40%. So
knowing nothing else about the data, the CV helps us see that even a lower standard
I've found the CV to be an underused metric considering it is so simple to compute and