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Risk Management 75-150 Words

Risk Management. Discussion question: (Posts should be within a range of 75-150 words) Every day, individuals take risks concerning their personal and professional lives. Drivers take a risk by speeding on a highway. Students take a risk by not studying for a quiz. Investors take a risk by investing in a stock. Business owners take a risk by offering a new product line. In almost every case, the risk takers have some sort of control mechanism – or management – to equal out those risks (or at least they should). Individuals take the risk to achieve a personal or professional benefit (e.g., getting to work on time, getting more sleep, making money, increasing market share); to what level depends on a myriad of factors, none the least of which involves the level of risk the individual is willing to take. This class will focus on the management of risk used by businesses operating on a national and global level. Personal risk and investment risk is discussed in other classes. Risk management is of great concern to any CEO or business owner, especially as it pertains to property and liability risks. Before we delve into this subject deeper, provide the class with an example of a risk that you engage in on a regular basis; explain what level you engage and what is your expected benefit. Homework questions:************************(ebook attached) Homework #1 – Chapter 1 Review and Practice Questions 1, 4, 5, 6, 7, 8, 13, 14 (p. 44)

Risk Management

Name

Institutional Affiliation

Introduction

Portfolio management usually involves the science and art of making solid decisions about a policy and investment mix while at the same time matching the investments to goals, balancing risks against performance and also allocation of assets among institutions. In a portfolio, there are four ways in which individuals can manage their risks. These include avoiding companies that have debt, investment on blue chips, avoiding leverage and margin and also diversification of the assets. This can always help to improve the ways in which risks can be managed.  This paper provides a discussion of four  of my stocks which include SUBX, DNKN, CAKE, TXRH and the risks management method for these stocks.

Risk Management methods

            There are several risk management methods that can be used in the aforementioned stocks. The first is diversification. This is the simplest form of management of the risks in the investment. One of the best ways of risk management is to ensure that each stock retains a 20% of the total investment. This would ensure that all the assets have been diversified effectively to the four risk management strategies. The account cannot be wiped out due to the adopted strategies that ensure that the risks have been effectively adopted.

Calculations for risk and reward of the portfolio

Suppose a stock is trading at 100 and the analysis demonstrates that it can go to 115 or downside to 95 as a good base level.

Expected reward =15

Expected risk =5

Under the diversification risk strategy the risk reward ratio would be 1:3

This shows for every unit of risk the reward is 3 units. It is also clear that by risking the lowest percentage such as 1% of the account would help to ensure that the risks have been effectively managed.

 Avoiding leverage and margin is also another true way of ensuring that the risk management has been managed and also leveraged. While it is evident that the trading of options can be a major lucrative strategy, it is always important to leverage the risk through a form of control (Greiner, 2013).   In avoiding the leverage, the reward profile  I will always ensure that the reward and risk is 2:1 meaning that the reward should always be higher than the risk.

            Investments in blue chips can also be a good strategy of ensuring that the portfolio is reliable and also stable. SUBX can be considered as a blue chip because it has been reliable and increasing in terms of the profitability from 2014. This means that this stock can be effectively managed over time hence ensuring that the investment has been under control. Putting a 50% of all the investments in this stock can always ensure that the company has been in profits for many years. This is because the stock is reliable and also ensures that the potential gains can always be achieved over time. It also advisable to always ensure that a company that has debts has been avoided to ensure that the companies have been kept into profitability. The identification of portfolio imbalance is also a sure strategy for ensuring that the risks have been effectively identified hence manages them in an extremely effective way (Patterson, 2012). 

Methodology

            In order to sufficiently develop a reliable model for analyzing of a portfolio risk, it is important to always analyze the cause and effect relations and also the interdependencies that help to manage those risks.  The use of Bayesian networks is an effective strategy to ensure that the main components for risk analysis have been considered. The cause and effect relationships need to be identified and analyzed to ensure that there is improved effectiveness in the management of those risks. The use of Bayesian networks can help in the risk analysis and also in identifying the causal relationships in the probability distribution. This can help to identify the risks and also manage them in an effective manner. Another strategy is the use of strategic alignment as a criterion for identifying the risks and also the objectives for the management of risks (Schönborn, 2010). 

Conclusion

            To sum it up, in order to keep risks at a desirable level and at a minimum, it is important to structure the risk and also provide an analysis of the risks in an effective manner. The main goal is to always mitigate the events, circumstances and also the events that affect the portfolio. This will help to manage the risks and also increase their potential to enhance customer satisfaction while at the same time increasing the quality and also the service level of the risks. Developing a portfolio management plan can always increase the ability for an individual to manage the risk and have good returns.

References

Greiner, S. P. (2013). Investment risk and uncertainty: Advanced risk awareness techniques for the intelligent investor. Hoboken: Wiley.

Patterson, G. W. (2012). Stick Out Your Balance Sheet and Cough. Place of publication not identified: AudioInk Publishing. Schönborn, J. (2010). Financial risk management: Management of interest risk from a corporate treasury perspective in a service enterprise. Hamburg: Diplomica-Verl.

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