Standard risk factors

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• Basis riskThe risk left over after hedging, because the exposure and the contract used to hedge it do not move identically — in size, in expiry date, or in what they are written on.
• BetaHow sharply a share moves relative to the market index — beta 1 moves with the index, above 1 amplifies it, below 1 dampens it. The standard measure of systematic risk.
• Credit spreadThe extra yield a non-government borrower must pay over a government security of the same tenor — the market price of credit risk, quoted as an add-on over the risk-free rate.
• Segregated portfolioA ring-fenced sub-portfolio holding the debt instrument hit by a credit event, split out of a scheme so that the good assets stay liquid and exiting investors cannot leave the damaged paper behind.
• Standard deviationA measure of how far returns typically stray from their own average — the standard statistic for total risk, counting company-specific and market-wide causes alike.
• Systematic riskThe part of an investment's risk that comes from economy-wide forces moving every asset at once — it cannot be diversified away, and it is the only risk the market pays you to carry.