Definition of risk assessment

Risk assessments involve an examination of possible outcomes from performing an action or from making an investment so that informed choices can be made on what course of action should be taken. Risk assessments can be qualitative or quantitative. A qualitative risk assessment would generate a description of the possible outcomes. A quantitative risk assessment generates a numerical value where potential loss and probability of occurrence are calculated.

Quantitative risk measures are included in investment funds data and expressed as a Sharpe ratio. The Sharpe ratio is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the answer you achieve by the standard deviation of the portfolio returns, (a measure of risk that looks at the diversion of actual returns from expected returns).

Qualitative discussions of risk frequently appear in news stories and often refer to investment risks. In March 2014 discussion returned to the default risk on sovereign debt. Jerome Booth, an investment manager with Ashmore, an emerging market specialist, argues in the video below that investment in emerging markets is far less risky than in their developed counterparts.