What is an active risk?

Active risk is the level of volatility associated with a specified portfolio or fund, as the investment is trying to overcome the amount of revenues identified as a scale for this asset. The idea is that in order to achieve this goal, the fund manager or portfolio must voluntarily take over the risk beyond the risk needed to simply equality of the benchmark. When considering any type of investment activity as a means of defeating the reference revenues, the manager must also consider the amount of active risk he takes on behalf of the portfolio or fund.

The concept of active risk is closely associated with active investment. This approach to investing is simply the process of closely management of assets held in the portfolio and taking aggressive and timely steps to increase the value of this portfolio. Active investment differs from passive investment, in the fact that a passive approach requires the acquisition of investment that is expected to generate a decent amount of return, causing them need toto unnecessarily manage these assets.

Since the aim of active investment is aggressive assets and increase the value of securities held in a portfolio or fund, this process requires managers to be willing to take further risks. In order to achieve this goal, managers must carefully look at the compromise with the return of the risk and find out whether the degree of risk involved in obtaining a given asset is behind the amount of return, which is eventually generated by this asset. If the manager determines that the security carries a high degree of risk only with an average potential return, it is likely that this particular investment will avoid. At the same time, if the possibility has a higher level of risk, but also has the potential to generate significant revenues, the manager may consider degrade active risk in reason and take steps to get this option.

Identification of the active risk associated with any request requiredIt is determined by what the investor considers to be a measure for the performance of this asset. This process also requires decisions that are not necessarily based on the market projections in general. Active risk is often present when the manager has a reason to believe that the asset will outperform similar assets on the market due to a certain type of unusual events that occur in the short term. By timing the purchase of these assets so that they are in hand just before the expected events, the manager is able to generate more return if these events continue to affect the value of these assets. The manager further increases the revenues by accurate determination where it is to sell these assets and avoid losses that can take place when prices begin to settle in a pattern that is more in maintaining the current market trend.