概念辨析Residual risk vs. Systematic risk ||Risk premium vs. Alpha

• Residual risk

  Residual risk refers to what remains after you take out all the risks that you think the asset is exposed to.

  The Financial Times’ glossary of terms, says that residual risk means the same as non-systematic risk. Non-systematic risk, the FT explains, is the risk that is specific to a particular stock, as opposed to market risk or systematic risk, which is common to an asset class or the overall market.

  Unsystematic risk, also known as company-specific risk, specific risk, diversifiable risk, idiosyncratic risk, and redisdual risk, represents risks of a specific corporation, such as management, sales, market share, product recalls, labor disputes, and name recognition.

  1. Credit risk||Company risk
     1. Business risk
     2. Financial risk
  2. Sector risk

• Systematic risk

  Systematic risk is largely due to changes in macroeconomics. Reducing systematic risk can lower portfolio risk; using asset classes whose returns are not highly correlated (quality bonds, stocks, fixed-rate annuities, etc.). It is possible to have higher risk-adjusted returns without having to accept additional risk, a process called portfolio optimization.

  Can not be circumvented or eliminated by portfolio diversification but may be reduced by hedging.

  In stock market systemic risk (market risk) is measured by beta.

  1. Market risk
  2. Interest-rate-risk
  3. Liquidity risk
  4. Default risk
  5. Real estate risk

• Portfolio’s risk

  The portfolio’s risk (systematic + unsystematic) is measured by standard deviation.

  Article by E.J.Elton and M.J.Gruber published in the Journal of Business in October 1977, shows that most unsystematic risk is eliminated if the portfolio is comprised of 20+ stocks from several different sectors.

  Phrased another way, 61% of stock risk can be eliminated by owning 200+ stocks (or a single, broad based U.S. stock index fund); 56% risk reduction with just 200 stocks from several sectors.

  The total risk for a well-diversified stock portfolio is basically equivalent to systematic risk.

  While an investor expects to be rewarded for bearing risk, one is not rewarded for taking on unnecessary risk, such as unsystematic risk.

  A classic 1968 study by Evans and Archer, Diversification and the Reduction of Dispersion, concluded an inverstor owning 15 randomly chosen stocks would have a portfolio no more risky than the overall stock market.

• Risk Premium

  The risk premium is the rate of return on an investment over and above the risk-free or guaranteed rate of return.

  The market risk premium is the additional return an investor will receive (or expects to receive) from holding a risky market portfolio instead of risk-free assets.

  There are three primary concepts related to determining the premium:

  1. Required market risk premium - the minimum amount investors should accept. If an investometns’s rate of return is lower than that of the required retur of return. Then the ivnestor will not invest. It is also called the hurdle rate of the return.
  2. Historical market risk premium - a measurement of the return’s past investment performance taken from an investment that is used to determine the premium. T