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Market risk is the risk that the value of your investment will decrease due to moves in market factors. The four standard market risk factors include:
- Equity risk, or the risk that stock prices will change.
- Interest rate risk, or the risk that interest rates will change.
- Currency risk, or the risk that foreign exchange rates will change.
- Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will change.
Sometimes, a fifth risk factors is also considered:
- Equity index risk, or the risk that stock or other index prices will change adversely.
Measuring
Market risk is typically measured using a Value at Risk methodology. Market risk can also be contrasted with Specific risk which measures the risk of a decrease in one's investment due to a change in a specific industry or sector, as opposed to a market-wide move.
See also
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