RiskGrades (RG)

What Does RiskGrades Suggest?

RiskGrades (RG) is a trademarked approach for calculating the risk of an asset. RiskGrades is a standardized measure for evaluating the volatility of an asset during various asset classes. The size starts at 0 which is the least bad rating. A rating of 1,000 equals the standard market danger of a diversified market-cap weighted global equity index. RiskGrades business over time to copy not best possible the unsystematic danger of an investment however moreover will build up in general systematic danger available in the market. RiskGrades are according to a variance-covariance way that measures the volatility of belongings or asset portfolios since the scaled same old deviations of the returns.

Additional difficult RiskGrades calculations allow for a few additional concepts. To calculate the RG of an asset, use the following elements:


$\begin{array}{cc}& {\text{RG}}_i=\frac{s_i÷12}{0.2}\\ & \text{where:}\\ & s_i=\text{per 30 days same old deviation of the asset}\end{array}$

get started{aligned} &text{RG}_i = frac { s_i div 12 }{ 0.2 } &textbf{where:} &s_i = text{per 30 days same old deviation of the asset} end{aligned} ​RGi​=0.2si​÷12​where:si​=per 30 days same old deviation of the asset​

The RG of a portfolio of 2 belongings is calculated with the following elements:


$\begin{array}{cc}& {\text{RG}}_p^2=(W_1^2\times {\text{RG}}_1^2)+(W_2^2\times {\text{RG}}_2^2)+\\ & \phantom{{\text{RG}}_p^2=}2\times W_1\times W_2\times r_{12}\times {\text{RG}}_1\times {\text{RG}}_2\\ & \text{where:}\\ & W=\text{weighting of the asset}\end{array}$

get started{aligned} &text{RG}^2_p = ( W^2_1 events text{RG}^2_1 ) + ( W^2_2 events text{RG}^2_2 ) + &phantom{text{RG}^2_p =} 2 events W_1 events W_2 events r_{12} events text{RG}_1 events text{RG}_2 &textbf{where:} &W = text{weighting of the asset} end{aligned} ​RGp2​=(W12​×RG12​)+(W22​×RG22​) +RGp2​=2×W1​×W2​×r12​×RG1​×RG2​where:W=weighting of the asset​

The Undiversified Risk Grade (URG) of the equivalent portfolio uses the following elements:


$\begin{array}{cc}& {\text{URG}}_p=(W_1\times {\text{RG}}_1)+(W_2\times {\text{RG}}_2)\\ & \text{where:}\\ & W=\text{weighting of the asset}\end{array}$

get started{aligned} &text{URG}_p = ( W_1 events text{RG}_1 ) + ( W_2 events text{RG}_2 ) &textbf{where:} &W = text{weighting of the asset} end{aligned} ​URGp​=(W1​×RG1​)+(W2​×RG2​)where:W=weighting of the asset​

To come to a decision the take pleasure in diversification, we can use RiskGrades to come to a decision the Diversification Benefit:


$\begin{array}{c}{\text{DB}}_p={\text{URG}}_p-{\text{RG}}_p\end{array}$

get started{aligned} text{DB}_p = text{URG}_p – text{RG}_p end{aligned} DBp​=URGp​−RGp​​

Understanding RiskGrades (RG)

RiskGrades had been complicated by way of JPMorgan. You are able to use RiskGrades to come to a decision the level of danger to your portfolio according to the following numbers:

The RGof a risk-free asset is expected to be 0.

The RG of a low-risk asset is expected to be 0 to 100.

Usual stocks/indexes will have to have an RG of 100 to 300.

Stocks with an RG of 100 to 800 are considered best danger.

IPOs have an RG greater than 800.