which one of the following is the best example of systematic risk? This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you WHAT IS SYSTEMATIC RISK?. Following along are instructions in the video below:
“We are going to cover systemic risk. So let s play a game. I m m going to give you a choice between two investment investment. Number one investment number and i provide here the annual returns for each investment both of them make an average of five percent a year.
But take a look investment one and the investment two are very similar to each other in fact. I m just switching the numbers around here you go year. One this investment make thirteen percent and year two investment number two mate 13 year two investment number. One made five percent minus 5.
Percent and investment number two made minus five percent..
So i m just switching the investments around so basically look you ve got two investment with the same average returns. And then the stability or the volatility of the returns as in individual investments are the same because the numbers are exactly the same so which one would you choose most people will say well abdel. It s the same thing from indifferent. Well me.
Give you another very important information. Most investments are of course related and correlated with the economy as the market move as the economy moves higher other investments the wealth for example in real estate. The economy does well real estate moves up so you know the saying that don t put all your bust. All your eggs in the same basket assume that the market or the stock market moves.
Exactly the same as investment number one let s just pretend..
It s actually every year. It s twice as much so yet one it s 26 percent year. Two is minus ten percent year. Three is minus ten percent.
And so on and so forth well this in investment. One adds value to my portfolio. No because it exactly moves the same with the market. I need something different when the stock market goes down.
I need something to help me make money if i just use the investment..
One stock market goes down investment want it goes down. Okay. This is accomplished actually by investment number two look at it here number. Two stock market goes down ten percent.
This investment goes down my minus five percent. The investment makes money 13 percent same for year three and same for year six. So by having this investment. Number two in our portfolio.
It helps us diversify risk..
And this is a very important concept that s what i call systematic risk bottom line. You cannot just look at returns. Only you also have to look at systemic risk. What you want in your portfolio.
Is investment that are uncorrelated with each other they don t always move together so this concept of systemic risk is really important also make sure to check out the video about in your sink. Rattle risk. I have included the link below in the description. Thank you so much and i will see you next time ” .
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