What is the risk analysis?
The risk analysis of industry is carried out by an investor or an investment professional determined to show the risks associated with investing in a particular sector. The idea of such an analysis is that different companies in the same industry are often connected in terms of their performance and risks that their specific industries hold. Risk analysis in the field includes the search for events in the real world that could damage the specific industries and mapping of price performance that could follow any significant declining trends. In addition, the analysis can focus on the investor's portfolio to ensure that it is well diversified and immune to most industrial risks. Such a strategy could overlook the type of risks that society assumes only on the basis of the industry it inhabits. This is known as industrial risk and is so significant that it can change the happiness of any society. Because this is the case, it is wise for investors to consider the analysis of the risk of industry in the composition of their portfolio.
As an example of how industrial risk works, imagine the company in the technological industry that is devoted to one particular product. If another company came up with an improved technology that made this product outdated, the company could have serious financial problems and their stock price would reflect it. A solid risk analysis in the field would take into account this type of risk when the valuation of this company.
Risk analysis of industry can be performed by technical analysis technique, which are similar to techniques used for individual stocks. The only difference would be that these techniques, such as price charts and moving averages, would be applied to industry diameters. In this way, price trends can show whether the industry is heading for Decline. Using this type of analysis in conjunction with qualitative analysis of current events that could cause a storm in some diarrheaYSL sectors will provide a complete overview of the risk factors of the industry.
One way that the risk analysis can help the investor is to show whether its portfolio is too strongly distorted to a single industry. Such a scenario could be harmful if the industrial risk around this industry took place and stock prices fell. Balance of portfolio with shares from different industries with different risk levels can help prevent such calamity.