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stevo

Indeed.

tech/a

Jump in whenever baby!

Diversification was adopted, or borrowed from the Insurance industry, from which it forms the underpinning of underwriting risk
It was incorporated into the financial markets, as it had worked very successfully, over a long period of time, and a large number of individual cases, providing a statistically significant result, with a high confidence level to the results.

There are however some important differences.
If underwriting life insurance, the statistical body of evidence gathered over many years, added to medical statistics regarding mortality rates, due to age, accidents, disease, etc. provided Actuaries with hard data, that changes very little over time.

In the stock market, we have to utlize diversification within two separate classes of risk. alpha risk, and beta risk
Which due to the competitive and secretive nature of the markets makes the aquisition of hard data quite challenging.

alpha risk, is the risk that is better described as business risk that will incorporate the following risks;
Peril,
Physical hazard
Moral hazard
Static risk
Dynamic risk,
Fundamental risks
Particular risks,
Speculative risk
Pure risk,
Liability risks
Failure risk,
Act of God.

beta risk, is Market risk, and most easily observed as "Price movement".
The beta assigned to individual stocks reflects their past volatility, as compared to the benchmark index, of which they are a member.

Both stoplosses, and diversification can be utilized in tandem, or individually, or of course, not at all. There are situations, according to the type of risk, or the amount (risk exposure) that one may be preferrable to the other.

jog on
d998

<blockquote data-quote="ducati916" data-source="post: 37816" data-attributes="member: 2975">stevo Indeed.tech/a Jump in whenever baby!Diversification was adopted, or borrowed from the Insurance industry, from which it forms the underpinning of underwriting risk It was incorporated into the financial markets, as it had worked very successfully, over a long period of time, and a large number of individual cases, providing a statistically significant result, with a high confidence level to the results.There are however some important differences.If underwriting life insurance, the statistical body of evidence gathered over many years, added to medical statistics regarding mortality rates, due to age, accidents, disease, etc. provided Actuaries with hard data, that changes very little over time.In the stock market, we have to utlize diversification within two separate classes of risk. alpha risk, and beta risk Which due to the competitive and secretive nature of the markets makes the aquisition of hard data quite challenging.alpha risk, is the risk that is better described as business risk that will incorporate the following risks;Peril,Physical hazardMoral hazardStatic riskDynamic risk,Fundamental risksParticular risks,Speculative riskPure risk,Liability risksFailure risk,Act of God.beta risk, is Market risk, and most easily observed as &quot;Price movement&quot;.The beta assigned to individual stocks reflects their past volatility, as compared to the benchmark index, of which they are a member.Both stoplosses, and diversification can be utilized in tandem, or individually, or of course, not at all. There are situations, according to the type of risk, or the amount (risk exposure) that one may be preferrable to the other.jog ond998</blockquote>

[QUOTE="ducati916, post: 37816, member: 2975"] [B]stevo[/B] Indeed. [B]tech/a[/B] Jump in whenever baby! [B]Diversification[/B] was adopted, or borrowed from the Insurance industry, from which it forms the underpinning of [B]underwriting risk[/B] It was incorporated into the financial markets, as it had worked very successfully, over a long period of time, and a large number of individual cases, providing a statistically significant result, with a high confidence level to the results. There are however some important differences. If underwriting life insurance, the statistical body of evidence gathered over many years, added to medical statistics regarding mortality rates, due to age, accidents, disease, etc. provided Actuaries with hard data, that changes very little over time. In the stock market, we have to utlize diversification within two separate classes of risk. [B]alpha risk, and beta risk[/B] Which due to the competitive and secretive nature of the markets makes the aquisition of hard data quite challenging. alpha risk, is the risk that is better described as [B]business risk[/B] that will incorporate the following risks; Peril, Physical hazard Moral hazard Static risk Dynamic risk, Fundamental risks Particular risks, Speculative risk Pure risk, Liability risks Failure risk, Act of God. beta risk, is Market risk, and most easily observed as "Price movement". The beta assigned to individual stocks reflects their past volatility, as compared to the benchmark index, of which they are a member. Both stoplosses, and diversification can be utilized in tandem, or individually, or of course, not at all. There are situations, according to the type of risk, or the amount (risk exposure) that one may be preferrable to the other. jog on d998 [/QUOTE]

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