Active Risk
The standard deviation of the difference between a portfolio's returns and its benchmark returns, also called tracking error.
Asset Allocation
How a portfolio is divided among different asset classes.
Benchmark Risk
The risk that a portfolio's returns diverge materially from the returns of its designated benchmark index.
Beta
Measures a stock's sensitivity to market movements — how much it tends to rise or fall relative to the overall market.
Black Swan
An extremely rare, high-impact event that is nearly impossible to predict using historical data and standard risk models.
CAPM
Estimates a stock's required return based on its beta and the expected market risk premium.
Concentration Risk
The risk of amplified losses from overexposure to a single asset, issuer, sector, geography, or counterparty.
Correlation Matrix
A table displaying the pairwise correlation coefficients between all assets in a portfolio.
Correlation
Measures how consistently two return series move together, from −1 (perfect inverse) to +1 (perfect positive).
Country Risk Premium
The additional return investors require to compensate for the incremental risks of investing in a foreign country versus a risk-free benchmark.
Currency Exposure
The sensitivity of a portfolio's returns to changes in foreign exchange rates.
Diversification
Spreading investments across assets to reduce risk.
Equity Risk
The risk of financial loss from a decline in the market value of stocks held in a portfolio.
Event Risk
The risk that an unforeseen, company-specific or market event causes a sudden large change in an investment's value.
Fat Tail Risk
The higher-than-normal probability of extreme investment outcomes, caused by return distributions with heavier tails than a normal curve.
Inflation Risk
The risk that inflation erodes the purchasing power of investment returns, leaving investors worse off in real terms.
Investment Risk
The probability that an investment's actual return will differ from — or fall short of — its expected return.
Leverage Risk
The amplification of potential losses — and gains — that results from borrowing capital to invest.
Liquidity Risk
The risk of being unable to sell an asset quickly at a fair price, or of being unable to meet financial obligations as they come due.
Manager Risk
The risk that an active fund manager's investment decisions result in underperformance relative to the benchmark.
Market Risk
The risk of losses due to broad movements in financial markets, including equity prices, interest rates, currency rates, and commodity prices.
Max Drawdown
The largest peak-to-trough decline in a portfolio's value — the worst-case loss any investor could have experienced.
Model Risk
The risk of loss arising from errors or incorrect assumptions in financial models used to value assets or manage risk.
Operational Risk
The risk of loss from failures in internal processes, people, systems, or from external events unrelated to market or credit risk.
Political Risk
The risk that government actions, political instability, or policy changes will negatively affect an investment's value.
Portfolio Management
The art and science of selecting and overseeing investments to achieve specific financial goals within defined risk parameters.
Portfolio Volatility
The standard deviation of a portfolio's returns, measuring the degree of fluctuation around the average return.
R-Squared
The proportion of a fund's return variation explained by its benchmark, from 0 (no relationship) to 1 (perfect fit).
Reinvestment Risk
The risk that cash flows from an investment must be reinvested at a lower rate than the original investment's return.
Risk Budget
An allocation framework that assigns a total permissible level of portfolio risk across asset classes, strategies, or managers.
Risk Decomposition
The process of breaking down a portfolio's total risk into contributions from individual holdings, sectors, or risk factors.
Risk Factor
A systematic, persistent source of risk and return that affects many assets across the market.
Risk Parity
A portfolio construction approach that allocates capital so each asset class contributes equally to total portfolio risk.
Risk Tolerance
The degree of investment risk an investor is willing and able to accept.
Risk
The possibility that an investment's actual return will differ from its expected return.
Scenario Analysis
A risk management technique that evaluates how a portfolio performs under a range of hypothetical future market conditions.
Sensitivity Analysis
A technique that measures how changes in a single input variable affect the value of an investment or model output.
Shortfall Risk
The probability that a portfolio's returns fall below a specified minimum acceptable return or liability threshold.
Standard Deviation
Measures the dispersion of returns around the average — the most common gauge of investment volatility.
Stress Testing
A risk management technique that subjects a portfolio to extreme hypothetical market shocks to identify potential losses.
Systematic Risk
Market-wide risk that cannot be eliminated through diversification.
Tail Risk
The probability of rare, extreme investment losses that occur at the far end of a return distribution.
Tracking Error
The standard deviation of the difference between a portfolio's returns and its benchmark.
Unsystematic Risk
Company- or industry-specific risk that can be reduced through diversification.
Value at Risk
The maximum dollar loss not expected to be exceeded over a given period at a specified confidence level.
Variance
The average squared deviation of returns from their mean — the square of standard deviation.