Standalone Risk

What Is Standalone Risk?

Standalone risk is the risk associated with a single operating unit of a company, a company division, or asset, rather than a bigger, very much broadened portfolio.

Grasping Standalone Risk

All financial assets can be analyzed with regards to a more extensive portfolio or on an independent basis, when the asset being referred to is believed to be isolated. While a portfolio setting considers the investments as a whole and evaluations while computing risk, standalone risk is calculated expecting that the asset being referred to is the main investment that the investor needs to lose or gain.

Standalone risk implies the liabilities made by a specific asset, division, or project. It risk measures the perils associated with a single feature of a company's operations, or the risks from holding a specific asset, for example, a closely held corporation.

For a company, computing standalone risk can assist with deciding a project's risk as though it were operating as an independent entity. The risk wouldn't exist in the event that those operations quit existing. In portfolio management, standalone risk measures the risk of an individual asset that can't be decreased through diversification.

Investors might inspect the risk of a standalone asset to foresee the expected return of an investment. Standalone risks must be painstakingly considered on the grounds that as a limited asset, an investor either stands to see a high return assuming its value increments or an overwhelming loss in the event that things don't work out as expected.

Measuring Standalone Risk

Standalone risk can be measured with a total beta calculation or through the coefficient of variation (CV).

Total Beta

Beta reflects how much volatility a specific asset will experience relative to the overall market. In the mean time, total beta, which is achieved by eliminating the correlation coefficient from beta, measures the standalone risk of the specific asset without it being part of a very much broadened portfolio.

The Coefficient of Variation (CV)

The CV is a measure utilized in likelihood theory and statistics that makes a normalized measure of dispersion of a probability distribution. In the wake of working out the CV, its value can be utilized to examine an expected return alongside an expected risk value on a standalone basis.

A low CV would demonstrate a higher expected return with lower risk, while a higher value CV would imply a higher risk and lower expected return. The CV is believed to be particularly useful in light of the fact that it is a dimensionless number, intending that, in terms of financial analysis, it doesn't need the inclusion of other risk factors, like market volatility.

Highlights

• The coefficient of variation (CV), in the interim, shows how much risk is associated with an investment relative to the amount of expected return.
• Total beta checks the volatility of a specific asset on a standalone basis.
• Standalone risk is the risk associated with a single part of a company or a specific asset.
• Standalone risk can't be moderated through diversification.