Investment Risk
When it comes to investments, risk is the variance of the percentage changes in value (returns) over time. The two histograms in Figure 1 summarize monthly percentage changes of two investments.
The histogram on the top shows monthly percentage changes on the stock market from 1926 through 2015; the histogram on the bottom shows US Treasury Bills (basically, a short-term savings bond). There’s almost no month-to-month variation (on this scale) in Treasuries. The stock market is much riskier. Sometimes stocks go up a lot (the largest monthly increase is 38%), and other times go down. This variation in what happens from month to month is risk.
Figure 1 Percentage changes of stocks ...
Get Statistics for Business: Decision Making and Analysis, 3rd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
