Learn to Invest
What is a Stock?
How to Choose a Stock
Active Trading vs Portfolio Management
How to start testing multiple strategies
What is an ETF?
How to Choose ETFs
What is short selling?
What is a Bond?
What is an Option?
What is Portfolio Management Strategy?
What is Diversification?
What is the Diversification Score?
How to Build a Basic ETF Portfolio
What are asset-classes?
What is Industry Exposure?
What is Geopolitical Exposure?
How to read impact on diversification
What is Volatility?
What is Return?
What is Sharpe Ratio?
How to Improve Sharpe Ratio
How do I measure risk?
What are average excess returns?
What is a good Sharpe Ratio?
Showcasing your work on EquitySim
Designing a stand-out resume
Preparing for the S+T interview
STAR Structure for Behavioural Interview Questions
Interview Prep: Tell me about yourself
Interview Prep: Pitch me an Investment Idea
Interview Practice - Partner Exercise
Interview Prep: What to wear
Why employers should work with EquitySim
2022 Financial Markets Campus Recruitment Insights
Case Study: 2019 Credit-Suisse Results
How-to: Company Pages
How to: Discovery
How-to: Portfolio Holdings
How to: Activity
How to: Leaderboard
How to: Performance
How to: Challenges
How to Trade
How to: use EquitySim to improve your recruitment potential
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Understanding your risk profile is like quantifying your ability to sleep at night. You may be comfortable with taking more risk on your investments, thirsty for a bigger gain; or you may prefer to take a safer bet while being satisfied with a modest gain. Everybody has their own level of risk appetite depending on factors like age, income, and investment goals.
The securities you decide to hold in your portfolio, as a whole, should match the level of your risk profile - so you can sleep at night :).
How do we measure the risk of a portfolio? In the Volatility Profile level, we understand that volatility characterizes the "ups and downs" of a security. We can apply the same concept to a portfolio as a whole: the volatility of a portfolio is the daily return rates of the portfolio.
Even though everyone may have a different risk profile, given the same performance of an individual security or a portfolio, it is always more desirable to have lower risk, or volatility.
Why? Let's say a term deposit's rate were exactly the same as the return rate of Apple on the stock market. You would put it in a term deposit rather than on Apple, right? The reason is that from a term deposit you always reap the return, hence a less volatile and less risky instrument than Apple. If both the term deposit and Apple have the same return rate, you are much better off investing in a term deposit.
One of the best ways to lower the volatility of your portfolio is to diversify your portfolio. The next few levels will walk you through ways to diversify your portfolio.