Barra Risk Factor Analysis
What Is the Barra Risk Factor Analysis?
The Barra Risk Factor Analysis is a multi-factor model, made by Barra Inc., used to measure the overall risk associated with a security relative to the market. Barra Risk Factor Analysis consolidates north of 40 data metrics, including earnings growth, share turnover and senior debt rating. The model then, at that point, measures risk factors associated with three primary parts: industry risk, the risk from exposure to various investment subjects and company-specific risk.
Figuring out Barra Risk Factor Analysis
An element that investors and portfolio managers examine while evaluating the markets or portfolios is investment risk. Distinguishing and measuring investment risk is perhaps of the main step taken while choosing what assets to invest in. This is on the grounds that the level of risk taken decides the level of return that an asset or portfolio of assets will have toward the finish of a trading cycle. Thus, one of the most widely accepted financial principles is the tradeoff among risk and return.
One method that a portfolio manager could use to measure investment risk is evaluating the impact of a series of broad factors on the performance of various assets or securities. Utilizing a factor model, the return-generating process for a security is driven by the presence of the various common fundamental factors and the asset's unique aversions to each factor. Since a couple of important factors can clear up the risk and return expected on investment for a large degree, factor models can be utilized to evaluate the amount of a portfolio's return is inferable from every common factor exposure. Factor models can be broken down into single-factor and multiple-factor models. One multi-factor model that can be utilized to measure portfolio risk is the Barra Risk Factor Analysis model.
The Barra Risk Factor Analysis was spearheaded by Bar Rosenberg, pioneer behind Barra Inc., and is talked about finally in Grinold and Kahn (2000), Conner et al (2010) and Cari\u00f1o et al (2010). It consolidates a number of factors in its model that can be utilized to foresee and control risk. The multi-factor risk model purposes a number of key fundamental factors that address the highlights of an investment. A portion of these factors incorporate yield, earnings growth, volatility, liquidity, momentum, size, price-earnings ratio, leverage, and growth; factors which are utilized to depict the risk or returns of a portfolio or asset by moving from quantitative, however undefined, factors to promptly identifiable fundamental qualities.
The Barra Risk Factor Analysis model measures a security's relative risk with a single value-at-risk (VaR) number. This number addresses a percentile rank somewhere in the range of 0 and 100, with 0 being the least unpredictable and 100 being the most volatile, relative to the U.S. market. For example, a security with a value-at-risk number of 80 is calculated to have a greater level of price volatility than 80% of securities in the market and its specific sector. Thus, on the off chance that Amazon is assigned a VaR of 80, it means that its stock is more price unstable than 80% of the stock market or the sector wherein the company works.
Features
- The Barra Risk Factor Analysis is a multi-factor model, made by Barra Inc., that measures the overall risk associated with a security, relative to the market.
- Barra Risk Factor Analysis consolidates north of 40 data metrics, including earnings growth, share turnover, and senior debt rating.
