Risk is part of our everyday lives. We risk an auto accident when we drive to the store but choose to do so since the value of obtaining food outweighs the minimal risk of driving a short distance. Most of us don’t even realize the amount of risk management we deal with subconsciously every day. On the other hand, most of us are very aware of the need to manage health risks during a pandemic.
The world of finance uses a term called “value at risk” (VAR) to quantify various aspects of risk. This statistic quantifies the extent of possible financial losses within a portfolio or investment position over a specific period. It’s a mathematical method to determine the impact of risk, whether the investment should be made at all, and how much it will cost if things go south versus the potential upside.
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