Types of Analysis and risk Flashcards
Types of analysis
- fundamental and economic cycles
- macroeconomic data
- quantitative analysis
- behavioural analysis
- technical analysis
What are the 3 tiers of macro economic data?
High, medium or low volatility expected
Tier 1 figures
- interest rate
- GDP
- employment
- inflation- CPI
- manufacturing index/ service index
- industrial protection
- consumer confidence
- retail sales
Tier 2 figures
- PPI, RPI
- housing starts
- personal consumption
- ZEW/ IFO/ Michigan surveys
- building permits
- mortgage approvals
Housing starts
New residential construction projects that begin during any particular month
Investment risk
The uncertainty attached to making an investment to making an investment that the investment may not yield the expected returns
Types of risk
Systematic risk
Liquidity risk
Counter party risk
Operational risk
Systematic risk
The risk inherent to the entire market or an entire market segment. It affects all classes of investments
Sources of systematic risk
Inflation, interest rates, recession, politics, wars
How can systematic risk be mitigated?
Through hedging, it can’t be avoided by diversification
Diversifiable risk
The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market
Types of diversifiable risk
Bad management, lawsuits, strikes, things that affect specific companies and can be avoided by diversification
What is total risk made up of
Total risk = systematic risk + diversifiable risk + other risks
Other risks include
Counter party risk
Liquidity risk
Operational risk
Counterparty risk
The risk to each party of a contract that the other (counterparty) will not live up to its contractual obligations. It is also known as default risk or credit risk
How can counterparty risk be reduced?
Having an organisation with extremely good credit to act as an intermediary between the two parties.
Making sure that your direct counterparty has extremely good credit
