In theory, market risk should be the only "relevant" risk. However, companies focus as much on standalone risk as on market risk. What are the reasons for the focus on standalone risk?

Ashlynn Hale

Ashlynn Hale

Answered question

2022-08-10

In theory, market risk should be the only "relevant" risk. However, companies focus as much on standalone risk as on market risk. What are the reasons for the focus on standalone risk?

Answer & Explanation

Malcolm Good

Malcolm Good

Beginner2022-08-11Added 14 answers

Companies also focus on stand-alone risk since this is relatively easier to estimate as compared to market risk as new projects do not have information readily available to relate to the market returns.
Thus, quantitative analysis is usually done for stand-alone risk while qualitative for market risk.
Result:
Market risk is sometimes too costly to estimate.

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