downside risk

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Downside risk

Risk includes the chance that a security increases or decreases in value unexpectedly. However, most people are concerned with the chance of an unexpected decline - which is known as downside risk.


In technical analysis and fundamental analysis, an estimate of the potential percentage or dollar amount by which a security may fall in the near-term. There are various methodologies used to determine an upside. For example, an analyst may look at recent trends on a bank stock and believe that it has the potential to fall in value by 15% in the next few weeks. This might be an indication for investors to sell the stock. Downside is also known as downside risk. See also: Upside Potential.

downside risk

The potential losses that may occur if a particular investment position is taken. For example, the downside risk from holding Treasury bills is quite small. Compare upside potential.

downside risk

the risk of experiencing losses associated with an investment project and the magnitude of these losses. Managers' attitudes towards UNCERTAINTY will influence their assessment of the desirability of a project which has substantial downside risk.
References in periodicals archive ?
Overall, we see only limited potential for sovereign ratings in the euro area to improve from current levels, and material downside risks remain," says Kathrin Muehlbronner, a Moody's Vice President-Senior Credit Officer, and author of the report.
TM)] suite of solutions, which provide investors with upside participation plus embedded downside risk management.
Then we propose our assumptions, propose a model with a downside risk constraint, and report the equilibrium strategies.
The comprehensive (although heterogeneous) series of contributions--from professionals, practitioners, and academics--on the concept of downside risk offers a survey of the ways that such risk can be defined and dealt with, based on a half century of theoretical developments.
However, a performance plan based on a careful calibration and balancing of upside and downside risk will reward employees to the greatest extent possible for things over which they do have influence.
A Bank of Japan official said Friday there are downside risks to the Japanese economy.
It is understandable that business experts would expect firms with international investments to have less downside risk, Leiblein says.
The investor gives up dividends and changes in value on the appreciated stock for the dividends, upside potential and downside risk of another portfolio.
In his paper, "Bank Regulation, Risk Management, and Financial Stability," Alexander studies the effectiveness of Value-at-Risk and Stress Testing in controlling downside risk for banks' trading books, which involve interest rate related instruments and equities such as government securities, corporate bonds, and common stocks.
Governor Stephen Poloz said that the central bank was concerned about low inflation, even though upside and downside risks are balanced.
Like F-Squared's long-only strategies, the Alternative strategies strive to deliver long-term outperformance while avoiding significant losses through aggressive downside risk management.
Areas of downside risk for banks are their exposures to the UK commercial real-estate market and retail and corporate loan exposures in the European peripheral countries," it said.