According to Mayo (2020), "The variability of returns is measured by a statistical concept
called the standard deviation, while volatility is measured by what has been termed a beta
coefficient" (pg.143). Each measure can assess investment risk and help investors diversify
their portfolios, which leads to risk reduction. I'll choose Amazon. Their standard deviation is
3.56 and their beta is 1.24. Their standard deviation is fairly high which leads to more risk.
The same goes for their beta. Being above 1.0 means there's more volatility than the market.
The CAPM/SML model is used to help measure investment risk and what investors should
expect. This model will help investors accurately understand the risk of investing in Amazon.
Jensen's alpha can be used with the CAPM model because it's "a risk-adjusted performance
measure that represents the average return on a portfolio or investment" (Chen,2020). The
Sharpe ratio helps investors compare the return and risk of an investment. Finally, the
Treynor index can be used to measure the risk-adjusted performance of a portfolio by
looking at the excess return per unit of risk.
called the standard deviation, while volatility is measured by what has been termed a beta
coefficient" (pg.143). Each measure can assess investment risk and help investors diversify
their portfolios, which leads to risk reduction. I'll choose Amazon. Their standard deviation is
3.56 and their beta is 1.24. Their standard deviation is fairly high which leads to more risk.
The same goes for their beta. Being above 1.0 means there's more volatility than the market.
The CAPM/SML model is used to help measure investment risk and what investors should
expect. This model will help investors accurately understand the risk of investing in Amazon.
Jensen's alpha can be used with the CAPM model because it's "a risk-adjusted performance
measure that represents the average return on a portfolio or investment" (Chen,2020). The
Sharpe ratio helps investors compare the return and risk of an investment. Finally, the
Treynor index can be used to measure the risk-adjusted performance of a portfolio by
looking at the excess return per unit of risk.
