In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must provide higher expected yields if investors are to be attracted to them. Risk can take many forms, but a major one is valuation risk – paying too much for an asset. See also currency risk, exchange rate risk, market risk, political risk, volatility.
The Risk Evaluator is a tool provided by Skandia which compares the volatility of fund sectors. The sectors have been arranged in ascending order according to their volatility numbers which have been calculated over 5 years and the entire range has been divided into ten segments, each representing 10% of the range with 1 being least volatile and 10 being most volatile. The sectors have been placed into the relevant segment, depending on where their volatility numbers fall. Each segment has been colour coded to represent the risk associated with each sector.