Equity as an asset class is inherently considered to be risky.

Equity as an asset class is inherently considered to be risky. But what exactly are the market risk? If someone invest into a stock the risk is declined in the prices which would cause losses to the investors. The returns from the equity investments are volatile and this uncertainty is called as the risk.

It is very important to an investors to evaluate the expected returns and the risk associated. Some of the popular market risk evaluation techniques in stock markets are standard deviation, beta, value at risk, maximum draw down.

Standard Deviation – It measures the dispersion of the periodic return from its expected value or mean and measure volatility of periodic returns.
Beta – In beta we need to calculate the risk relative to the market. Any stock is exposed to two categories of market risk i.e. systematic risk and unsystematic risk. The risk associated with internal factors of company is called the unsystematic risk. While risk associated with the overall activity of an economy/market is called as systematic risk.
Value at risk – It measures thee level of risks associated with a stock or a portfolio over a specific time frame. It is measured in three variables the amount of potential loss, the probability, the time frame.
Maximum Drawdown – It is maximum amount of loss of a portfolio from its peak to its trough for a particular period of time. Maximum Drawdown formula is (Trough value – Peak Value) and then divide it by peak value.

One of the important parameters in stock market is the percentage of market risks you take. Every amount invested will always have a good percentage of risks and so it is important to measure your risk appetite before investing.