Discuss what the following statement means: "Investment risks are dependent on the sensitivity to the market".

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Answer :-

Investment risks are dependent on the sensitivity to the market. This statement means that the risk of the stock or any other investment is dependent on the risk of the market. This can be show as Beta . A Beta is just a measure of a risk which shows the change in security prices taking as a denominator of changes in the market position. The market is consists of the various stocks. Volatility is the variation which comes in the securities return if any security has high variations then it has high risk and this can be referred as standard deviation. For example we take a debt holder the value of the debt or the price of the bond is just depends on the changes in the market interest rates. If a security has a low flucuations then it means it has a lower standard deviation and if the stock has the high fluctuation then it has high standard deviation and high standard deviation means high risk and low standard deviation means a low

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