Explain the difference between portfolio risk and stand-alone risk.

2 page case study on investments (stock market) research

Portfolio risk is the overall exposure to risks of a collection of investments as a whole. It assesses the sensitivity of an investment portfolio’s value to various types of market-wide risks and takes into account correlations between different asset classes. Standalone risk instead examines the individual risk in investing in one specific asset, such as a particular stock or bond.

When selecting stocks for an investment portfolio it is important to diversify across different sectors and industries with varying levels of expected returns and volatility; thereby reducing the overall level of risk associated with a single investment opportunity. For example, I could choose three stocks from different sectors like technology, healthcare and energy – which would provide me with greater diversification than if I had chosen just one stock from any one sector alone. Furthermore, combining these three stocks in my portfolio would create a more balanced approach that should help reduce overall portfolio volatility compared to investing solely in one high-risk stock.