What is ‘risk Assessment’
Risk assessment is a General term used in many industries to determine the likelihood of losses on asset, loan, or investment. Risk assessment is needed to determine a worthwhile investment and the best process(es) for risk reduction, and presents the awards of the legs compared to the risk profile. It also determines the rate of return you need to make certain investment success.
Breaking down the ‘risk Assessment’
Examples of formal risk assessment techniques and measure the conditional value at risk (cvar) used by portfolio managers to reduce the probability of incurring large losses; loan to value real property used frequently mortgage lenders to assess the risk of lending funds; credit analysis, which is used by lenders to determine the creditworthiness of the borrower.
Risk assessment for investment
Both institutional and individual investment the expected amount of risk. This is especially true of non-guaranteed investments, such as stocks, bonds, mutual funds and exchange traded funds (etfs).
Standard deviation measures the coefficient of dispersion around a Central tendency; it is, in fact, how many plus or minus movement can be expected from the Central statistics. By may 2016, Standard & Poor’s (s&P) 500 stock index, presented in the spdr s&P 500 in real time (Ticker NYSE: spy) provided a three-year return 11.14%, with a standard deviation of 11.32%. Although the Fund returned 11.14% profit during the whole period of its change during the period would represent a return of -0.18% or 22.46% seventy percent of the time on one standard deviation according to statistical theory.
Risk assessment for lending
Lenders for personal loans, lines of credit and mortgage loans also undertake a risk assessment, known as a credit checks. For example, it is common that lenders do not approve borrowers that have credit scores below 600 because low scores indicate poor credit practices. Credit analysis the lender may take into account other factors such as available investments, collateral, income, or cash on hand.
Risk assessment for business
Business risks are huge and vary in different industries. Such risks include new competitors entering the market, employee theft, data breaches, product recalls, operational, strategic and financial risks, risks of natural disasters, and others. Al. Every business needs to have a process to evaluate current risk level and compliance to mitigate risks.