Financial Glossary: Residual Risk


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Residual Risk

Residual Risk

The component of an asset's Risk that cannot be explained by exposure to pervasive factors (the market), common factors (Interest rates, industrial production), or by industry affiliation. Residual Risk is analogous to unsystematic or diversifiable Risk.

Risk is the chance that an investment's actual return Will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.

Posted by Financial Research Associates, LLC

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