Developing an Appreciation for Risk

8 Pages Posted: 17 May 2013

See all articles by Patrick Beaudan

Patrick Beaudan

Northern Trust Corporation; Emotomy

Date Written: September 1, 2010


Investment risk is a multi-faceted concept. Various aspects of an investment’s risk can be important to some investors, but unimportant to others. The relevance of various risk metrics on a particular investment can shift over time. To reflect this complexity, there are many approaches to evaluating risk, and more statistical metrics can be devised than there are letters in the Greek alphabet. The practical reality is that understanding investment risk is a journey and not a destination. The key is to be attuned to risk, which comes from experience, from understanding and using with discernment the basic statistics available to describe investment opportunities, as well as from ongoing due diligence one’s investments. In this paper, we present a few examples of how to use the most elementary historical performance statistics, namely average returns and volatility of returns, to evaluate an investment.

Keywords: investment risk, volatility, investment performance statistics

JEL Classification: G11

Suggested Citation

Beaudan, Patrick, Developing an Appreciation for Risk (September 1, 2010). Available at SSRN: or

Patrick Beaudan (Contact Author)

Northern Trust Corporation ( email )

50 South LaSalle Street
Chicago, IL 60603
United States
415 839 5239 (Phone)

Emotomy ( email )

580 California Street
San Francisco, CA 94104
United States


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