Risk Management in Volatile Financial Markets


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So if you're heavy on GICs and savings accounts, risk management is about taking advantage of lower prices to move back to your target. Current market conditions provide an ideal opportunity to start de-risking your portfolio by buying stocks.

At a minimum, you should take a baby step. This is the tough one. If you now realize you're running with too much risk, be it stocks or exotic fixed-income products, it's not an ideal time to redress your situation. You probably want to be buying rather than selling.

The question you have to ask yourself is, can you live with another to per-cent decline, as unpleasant as that may be? If you can, then it's best to ride out this down cycle.


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Any changes made to your holdings should be done with the goal of maintaining the portfolio's growth and recovery potential. Of course, this strategy only works if you hang in there if markets go lower. If you've hit the wall and are at your downside limit, then some action is necessary.

The timing isn't ideal, but the only way to get back to an appropriate asset mix is to sell stocks. Risk management is not about precision or perfection. You have to accept that some of your moves, whether they're buys or sells, will, in hindsight, be less than ideal. For instance, any buys you make today may be too early, but if Mr. Market finishes his correction in the next week or so, they may prove to be your most timely.

Managing portfolio risk is about being prepared for a range of outcomes, not making a market call.


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    6 tips to manage volatile markets

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    Log in Register. Tom Bradley. Published October 17, Updated May 12, Comments Please log in to bookmark this story. Log In Create Free Account. Volatility is one of the factors that investors in the financial markets analyse when making trading decisions. There are two key approaches to volatility, each with its pros and cons:.

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    In relation to these two metrics, historical volatility backward looking serves as a baseline measure, with implied volatility forward-looking defining the relative values of asset prices. If the two metrics show similar values, then an asset is considered to be fairly priced on the basis of historical norms. For this reason, traders look for deviations from this equilibrium to establish if assets are overvalued or undervalued. Standard deviation is a measure used to statistically determine the level of dispersion or variability around the average price of a financial asset, making it a suitable way to measure market volatility.

    What is Volatility and How it Affects You?

    The higher the dispersion or variability, the higher the standard deviation is. The lower the variation is, the lower the standard deviation. Analysts often use standard deviation as a means of measuring expected risk and determining how significant a price movement is. Analysing market sentiment is an essential part of financial data analysis. Prices of assets traded on the financial markets will usually move up and down on a daily basis — a natural effect of the stochastic behaviour of the financial market.

    In spite of these price movements, hundreds of millions of investors worldwide continue to risk their money in the financial market, hoping to make returns in the future.

    Three ways to manage risk in this volatile market - The Globe and Mail

    The volatility of the financial markets is of interest to investors since high levels of volatility often come with the chance of huge profits or significant losses at the expense of higher uncertainty. If volatility is extremely high, investors may choose to stay away from the markets in fear of losing their funds.

    Others might engage in riskier trading in the hope of earning higher profits. Join the exciting world of online trading!

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    Risk Management in Volatile Financial Markets Risk Management in Volatile Financial Markets
    Risk Management in Volatile Financial Markets Risk Management in Volatile Financial Markets
    Risk Management in Volatile Financial Markets Risk Management in Volatile Financial Markets
    Risk Management in Volatile Financial Markets Risk Management in Volatile Financial Markets

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