Risk

An inevitable feature of financial transactions is risk. Conventional wisdom in finance holds that greater return is only achieved through the acceptance of greater risk. Despite the pervasive nature of risk, it is poorly defined and often misunderstood. The magnitude of risk in an investment is most commonly estimated with its standard deviation. A small standard deviation implies that the return distribution is closely spaced about its expected value. Thus it is more accurately known than it would be with a larger standard deviation.