Risk & Probability Glossary

The strategy of spreading investments across multiple assets to reduce unsystematic risk.

The probability-weighted average of all possible outcomes of an uncertain event, representing the long-run average result.

The mathematical measure of how likely an event is to occur, expressed as a value between 0 and 1.

A mathematical function that describes all possible outcomes and their associated probabilities for an uncertain event.

An individual willingness and financial ability to endure fluctuations in investment value.

The principle that higher potential investment returns are associated with higher levels of risk.

A measure of risk-adjusted return: (return minus risk-free rate) divided by standard deviation. Higher values indicate better return per unit of risk.

A statistical measure of how spread out values are from the average, used in finance as the primary measure of investment volatility.

Market-wide risk that cannot be eliminated through diversification, including recessions and interest rate changes.

The risk of rare but extreme events that fall in the statistical tails of a probability distribution.

Risk specific to a particular company or industry that can be reduced or eliminated through diversification.

The degree of variation in an investment returns over time, commonly measured by standard deviation.