What is Total Risk?

Risk, which is the uncertainty between the purpose of production and the results of labor, has roughly two meanings: one definition emphasizes risk performance as uncertainty of returns; the other definition emphasizes risk performance as uncertainty of costs or costs If the risk manifests as the uncertainty of the return or the price, it means that the result of the risk may lead to loss, profit or no loss or profit, which is a broad-based risk. The exercise of ownership by everyone should be regarded as Manage risk. Financial risk falls into this category. And the risk performance is the uncertainty of the loss, which means that the risk can only show the loss and there is no possibility of profit from the risk, which belongs to the narrow sense of risk. Risk and return are directly proportional, so generally aggressive investors prefer high risk in order to obtain higher profits, while stable investors focus on safety considerations.

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In the business activities of enterprises to achieve their goals,

There is no uniform definition of the connotation of risk in academia. Due to different degrees of understanding and understanding of risk, or different perspectives on risk research, different scholars have different interpretations of the concept of risk, but they can be summarized as the following representative View.

I. Risk is the uncertainty of the possible outcome of an event

AH Mowbray (1995) calls risk as uncertainty; CA Williams (1985) defines risk as the change of future results under given conditions and a specific period; March & Shapira believes that risk is the uncertainty of the possible outcome of things, It can be measured by the variance of the income distribution; Brnmiley believes that risk is the uncertainty of the company's income stream; Markowitz and Sharp et al.

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1. Diverse choice

Diversification means that consumers can take diversified actions to reduce risks when planning a certain risky economic activity in the future.

2. Risk diversification

Investors eliminate risk by investing in many projects or holding shares of many companies. This way of holding assets in multiple forms can to a certain extent avoid the risks of holding a single asset, so that the investment return of investors will be more certain.

3. Risk transfer (insurance)

In situations where consumers are at risk, risk aversers are willing to give up part of their income to buy insurance. If the price of insurance is exactly equal to the expected loss, risk aversers will purchase enough insurance to enable them to fully compensate for any possible losses, and determine that the income will be more effective for them than if there were no losses. The utility of the unstable situation of income, low income when there is loss. In addition, consumers can carry out self-insurance. One is to adopt a diversified portfolio of assets, such as purchasing mutual mutual funds; the other is to deposit funds with certain funds to offset future losses or lower income.